Dump truck and aggregate hauling company due diligence

Under a letter of intent, the question for a buyer shifts from whether this business looks good to whether the seller’s picture is true. In a hauling company the picture has four parts: who owns the trucks, what the carrier’s record says, what the customers will keep doing and what the company owes. Each part has its own documents and its own registry. A finding in any one can change the price. A few can end the deal. The list below is written for a buyer whose lawyer and accountant will run it, not to replace them.

Carrier safety record and inspections

Order the carrier’s safety record from the province that registered it. The Ontario government describes a CVOR abstract as a summary of safety performance, including collisions, convictions and inspections, and says the safety rating is available to the public. It also states that an “Unsatisfactory” rating will cause operating privileges to be suspended or cancelled throughout Canada. In Alberta, the government says commercial vehicles as defined by the National Safety Code require annual inspections, and that section 19 of the Vehicle Inspection Regulation requires all commercial vehicles to have a valid inspection certificate and decal, so ask for each truck’s certificate there. Other provinces run their own systems, so ask what theirs releases.

Who owns the trucks

Search the personal property security registry in the province where the trucks are kept, against the company and, where relevant, against individual trucks. Ontario’s Personal Property Security Act defines a security interest as an interest in personal property that secures payment or performance of an obligation, and the definition also includes certain leases and transfers of accounts, so a lender’s or lessor’s claim can sit on a truck the seller calls their own. Ask whether any trucks are leased rather than owned, and what each lease says about transfer or consent. Match serial numbers on the schedule to the trucks in the yard, and look at the plates and ownership documents as well. Any lien the search finds needs a payout figure and a plan for discharge at closing, written into the agreement rather than promised.

Condition and replacement cost

Have a qualified mechanic or appraiser inspect the main units, because the seller’s fleet list may not show a worn frame or a tired engine. An independent equipment appraisal gives you a figure to compare with the price. Ask for maintenance and repair records for each unit and compare them to the age on the list. Where an inspection finds near-term replacement needs, raise it with the seller before closing.

Workers’ compensation and payroll

In Ontario, the WSIB says that if you are purchasing a business’s assets you should get a purchase certificate, requested before the date of sale, and that it may hold the purchaser liable for all amounts owed by the vendor up to the date of sale if you do not get a valid one; in a share sale, it says, a purchase certificate isn’t required. Its separate clearance certificate relieves a principal of liability for payment obligations to the WSIB that a contractor may incur during the clearance’s validity period. In Alberta, the WCB says you have a responsibility to get a clearance when buying a business, its stock or equipment. Ask which board and which document apply. Check payroll remittances and the status of any employee classification disputes, particularly where owner-operators are treated as contractors. Treadstone Law notes that in a share purchase the corporation comes with its liabilities, so ask how any tax or board liability would be dealt with. Ask for the most recent remittance records, any audit or assessment notices and the driver list with each person’s licence class. A driver whose licence has lapsed, or one who cannot legally drive the weight class the company dispatches, is a finding that costs capacity as well as money.

Customers, tenders and registrations

Ask to speak with the main customers once the seller agrees, and ask for tender documents, contract end dates and prequalification letters in writing. Confirm whether any hauled material was classified as waste under provincial rules, and what registration that required. Revenue concentrated in a single pit or contractor is a finding. Check whether any prequalification has lapsed. Also ask for the insurance policies and claims history, and read them against the safety record. Compare what customers say with what the books show. The glossary entry on due diligence explains the general process.

• An unsatisfactory or deteriorating carrier safety record that would jeopardize tender prequalification
• Liens or leases on trucks that the seller cannot clear at closing
• A fleet that needs wholesale replacement with no financing to pay for it
• Loss of the anchor pit, quarry or paving relationship before closing
• Unpaid board premiums or remittances, which come with the corporation in a share purchase