Why final mile mergers and acquisitions will continue to boom after COVID-19

Despite global challenges due to COVID-19, the logistics sector is currently projecting solid growth for the next five years, thanks largely to unprecedented gains in ecommerce and omnichannel fulfillment. In other words, while some last mile logistics companies are struggling to adapt, others are seeing massive returns—especially businesses that rely on 1099 workforces. This model allows you to scale quickly and ebb and flow with workforce needs.  

As an inevitable result of this growing sector, mergers and acquisitions are becoming a hot topic as well. And though working with or transitioning to an independent contractor (IC) model can make your business better prepared to buy or to sell, this model does come with its own set of challenges, from driver shortages to worker classification concerns. These issues are why it’s always a good idea to put a robust compliance framework in place and ensure your company is following that model to the letter. Luckily, it’s never too early—and rarely too late—to get started. 

Start prepping early—as in, right now! 

As soon as possible, you should start establishing a strong IC compliance framework and aligning this framework with your longterm business strategies. Doing so will establish a solid foundation for planning to sell your business or even acquire another one, especially if you have (or are looking to carve out) a niche in an established market, such as last mile logistics.  

But, if you’re close to selling or buying, there are also several questions you should be asking about your IC model: 

1. How can I establish a contractor model that makes my business more attractive? 
2. Will I be more appealing if I can prove my IC workforce is fully compliant? 
3. What if the buyer or seller already has an IC management platform in place? 

We’ll respond to those questions in a bit, but keep in mind that the answers will vary based on whether you intend to wait for the prospect of greater business growth or decide to sell or merge your business now. Overall, the economy is currently flush with investors looking for merger and acquisition opportunities, so now is a great time to act—but only if you’re ready. 

Are you ready to go to market? 

Even if the economy is ready, your company might not be. There are certain factors that could mean your company is currently a less desirable candidate for a sale or merger, including: 

•  Metrics. Buyers will be looking at a number of key metrics, including earnings before interest, gross and other margins, pre-cash flow conversion, and revenue growth rates. 
• Performance. IC-based businesses often struggle to keep up with giants like Amazon. If this sounds familiar, consider hiring experts to help repair your margins and your image. 
• Infrastructure. How well are you leveraging internal and external resources to ensure your business practices support rather than undermine your IC workforce model? 

The bottom line is this: To be ready for the market, you may need to make some changes to your business—in particular, the way you interface with ICs. This includes revamping your compliance program, and to do that, it’s recommended that you bring on advisors and a legal team at least a year before making any big decisions. That way, if you do end up making changes, a potential buyer can see a track record of positive results. 

Preparing and executing 

One key aspect of preparing for a merger with or acquisition of a company reliant on a 1099 workforce is making sure those workers are properly informed. Employees and ICs alike should understand any changes, including why they’re happening and how they’ll be implemented. This requires clear lines of communication between your company, your employees, and the ICs you contract with. Ensuring everyone has a complete understanding of expectations makes it less likely that issues will occur when moving forward with a sale or acquisition. 

That’s just one possible issue, and there are many others that can arise when getting a company ready to sell or merge. The good news is that an IC management platform like Openforce can help with all of them, providing a clear, logical path from IC onboarding to final settlement. 

For example, you’ll need help maintaining detailed worker classification documentation, even while a deal is being negotiated. And, whether you’re the one doing the buying or selling, Openforce will work directly with the other company to orchestrate enrollment and onboarding processes, develop a comprehensive driver communication strategy, and ensure settlements begin right on schedule. Even better, we have a full-time, bilingual support team that can empower each driver to complete enrollment. 

The final question 

It’s obvious why a 1099 workforce may be appealing to investors, especially in an industry like last mile logistics. Building the necessary structure to sell or buy such a business, however, means you’ll need a solid technology solution or managed service provider to onboard, pay, insure and retain 1099 workers. Such a system will close compliance gaps and ensure the deal keeps moving along smoothly. 

Remember the questions from earlier? Here’s how a platform like Openforce answers all of them, whether you’re acquiring or being acquired:  

1. How should I manage a contractor model to make my business more attractive? Having a comprehensive, end-to-end IC management platform puts your business in a much better spot for mergers and acquisitions by ensuring all ICs are managed compliantly. 
2. Will I be more appealing with a trail of good fact-checking regarding my fully compliant workforce? You bet! Making a 1099 workforce fully compliant is a huge checkmark in your favor when being appraised for an acquisition or merger. Plus, Openforce stores and lets you access all documentation in a central location. 
3. What if the buyer or seller already has an IC management platform in place? Openforce offers fully customizable integration with existing technologies to ensure the transition is as seamless as possible. 

In the end, Openforce benefits both parties, whether you’re selling or buying—but our involvement does raise one more important question: If the other company has no IC management platform in place, how quickly can Openforce get potentially hundreds of ICs checked, enrolled, and working? 

Our IC management platform is the fastest, easiest way on the market to enroll, onboard and settle with ICs. In fact, we can and have enrolled hundreds of ICs in a matter of days—not weeks or months—by offering standardized options that remove the guesswork from complicated workflows and by leveraging world-class partners to qualify ICs in real time.   

The last mile economy may be growing, but compliance is still the key. Openforce offers not only a comprehensive IC management platform but also helpful risk management resources to make sure you maximize your gains from a merger or acquisition. Reach out today to learn more and get a free risk assessment on just how defensible your contractor model is in today’s ever changing legislative environment.