Long-haul trucking carrier due diligence

Once a letter of intent is signed, the work becomes document-driven. For a long-haul carrier, the findings that end deals can sit in four places: the regulator’s file on the carrier, the registrations against the equipment, the way drivers are engaged, and the contracts with customers. The goal is to confirm that what the seller described matches what the records show, and to learn what each gap means for price, structure or the decision to proceed. Ask your lawyer and accountant to run the legal and financial parts. This guide sets out what to request and why.

The regulator’s record of the carrier

Ask for the carrier’s safety fitness certificate or provincial registration and the current safety record. In Ontario, a CVOR abstract summarizes collisions, convictions and inspections, and a facility audit examines records and can lead to charges. The Ministry says an “Unsatisfactory” rating suspends or cancels operating privileges throughout Canada. Request any audit reports, intervention letters and sanction notices, and compare them with what the seller told you. Other provinces have their own authorities, so ask the seller’s province what the equivalent record is and how to obtain it.

Registry searches on the equipment

Search for security interests against the seller and the operating entity before relying on any unit list. Ontario’s Personal Property Security Act sets up a registration system and provides for perfection by registration, and other provinces have their own statutes and registries. Match each tractor and trailer to the registrations that name it, then compare the loan balances with the value you are being asked to pay. Our answer on running a PPSA registry search walks through the steps.

How the drivers are engaged

Request each driver’s agreement, the settlement or pay records, and the seller’s reasons for treating each driver as an employee or as an owner-operator. The Canada Revenue Agency says that, generally, an employee works under the direction and control of the individual or business who hired them, and that a self-employed worker is not under the direction or control of the payer. If the facts look like employment but the paper says contractor, ask your accountant and lawyer whether that creates payroll obligations and whether they stay with the entity. Check, too, whether owner-operator lease-on agreements can be assigned or must be signed again with a new owner. Ask who carries the insurance on each unit, who pays for fuel and repairs, and whether any owner-operator has a dispute or claim open. Compare the number of drivers on the settlement records with the number on any list the seller gave you, since a mismatch is a question to ask, not a conclusion to draw.

Customer contracts and personal information

Read each significant customer and broker agreement for change-of-control, assignment and termination terms. Ask for a payment history that shows who actually pays and how long they take. Driver and customer files contain personal information. The Personal Information Protection and Electronic Documents Act (s.7.2(1)) allows organizations that are parties to a prospective business transaction to use and disclose it without the knowledge or consent of the individual if they have an agreement requiring the recipient to use it solely for purposes related to the transaction, protect it with appropriate safeguards and, if the deal does not proceed, return or destroy it within a reasonable time, and the information is necessary to decide whether to proceed and, if so, to complete the deal. Put that agreement in place first, and keep the data room limited to what the stage of the deal needs. Ask for employee and driver records in the form your advisers need them, and agree who will see them. If the deal does not close, make sure the files are returned or destroyed as the agreement provides.

• Safety certificate or registration, current safety record, and every audit or intervention document
• Security-interest registry searches against the seller, the operating entity and each unit
• Driver and owner-operator agreements, pay records and the basis for each classification
• Customer and broker agreements, with assignment and change-of-control terms flagged
• Insurance claims history and any open investigation

Findings that change the deal

An open audit, a downgraded rating or a lien that exceeds the unit’s worth each calls for a different response. A regulatory problem may mean restructuring the deal, adjusting price or ending talks. A lien may be paid out at closing. A customer who can leave on a change of control may need to consent before you sign. Where a driver’s status looks wrong, ask your lawyer whether the exposure belongs in the price, in an indemnity or in a holdback. Where the insurer’s file shows a pattern of claims, ask the insurer what it would require from a new owner. Write each finding down with the document it came from, so your advisers can see what has been checked and what remains open. Share the list with the seller as you go, so any missing record or unclear entry can be raised early. For how to handle surprises, see what to do if you find a problem during due diligence.