Flatbed carrier due diligence

A buyer under a letter of intent is trying to learn whether the seller’s story survives contact with documents. For a flatbed carrier the story has four parts: the company is allowed to operate, its safety record is what the seller says, the trailers are owned free of claims, and the drivers and shippers will still be there after closing. Each part has its own evidence. This guide sets out where to look for that evidence and what a bad result means, so the buyer can tell a fixable problem from a deal-ender.

Pull the safety record yourself

Do not rely on a copy the seller hands over. In Ontario, the government describes a CVOR abstract as a summary of a carrier’s safety performance, including collisions, convictions and inspections, says online carrier records include detailed information on all collisions, convictions and inspections, and offers a free online carrier safety rating enquiry. Ontario lists the Level 1 abstract as available to the general public and the Level 2 record as for carriers only, so order the Level 1 yourself and ask the seller to have the Level 2 sent to you or your lawyer; Ontario says sending a Level 2 abstract to a different address requires a written request on corporate letterhead. Compare what you find to what the seller disclosed. A gap between the two is itself a finding. Keep the seller’s disclosure and your own pull side by side in the deal file, note the date you obtained each, and ask your lawyer how to put any difference to the seller in writing. Ask whether the record should be pulled again shortly before closing to see what has changed since.

Confirm the registration and its status

Find out which regime applies. Transport Canada says federal authority covers extra-provincial carriers moving goods across a provincial or international boundary, and that the federal Motor Carrier Safety Fitness Certificate Regulations require such carriers to obtain a safety fitness certificate before operating. Alberta says a change in a carrier’s operating status may require compliance with different regulatory requirements, and that a corporate name change requires amending the certificate. Check the certificate’s status, any conditions on it, and whether the name on it matches the selling entity.

Search the trailers for claims

Trailers and tractors may have a lender’s or equipment financer’s claim registered against them. Ontario’s Personal Property Security Act provides for registration of a financing statement, and a certificate of search can show what is registered against a debtor name or vehicle identification number. Ask your lawyer which provinces’ registries to search, given where the equipment is located and where the seller is based. Match each trailer’s serial number to the seller’s list, then match any registered claim to a loan the seller has disclosed.

Test the people and the freight

Request the driver list with hire dates and ask which drivers hold the securement and tarping experience the seller describes. Request revenue by shipper for the recent past and compare it to invoices. Ask to speak with the largest shippers, with the seller’s consent and at the right moment. Review insurance and claims history for cargo claims tied to loads that shifted or came off. Read maintenance records for the trailers and securement gear, and consider an independent inspection by a qualified person.

• A safety-record gap between the seller’s disclosure and the registry, or an unexplained rating
• A securement-related claim or serious incident with no clear account of what changed afterward
• A lien on a trailer that does not match any loan the seller disclosed
• A driver base near retirement with no replacement plan
• One or two shippers providing most of the revenue, with no sign they will stay

Sorting the findings

Sort each finding into groups: a lien the seller can pay out, which your lawyer can build into the closing steps; a finding nobody can explain, which needs an answer before you go on; and a finding that bears on value, such as recent serious incidents tied to securement or a shipper that says it will leave on a change of owner, which you may want to take into the price or the structure. Take each finding to your lawyer and accountant. See also trucking authority and safety transfers and how to verify inventory and equipment.

Keep an open-items list

Before the first call, write down what you still cannot answer about the trailers, the drivers and the shippers. Who moves the freight, who buys it, how it is secured, and what the safety registry shows: each should end up backed by a document. Review the list with your adviser and keep it as the open-items list for the deal. Record beside each item who is responsible for closing it, which document would close it, and the date you asked. Share the status with your lawyer before any decision to proceed.