An Asset-Heavy Logistics Exit: Fleet, Warehouse, and One Big Customer

Financial Snapshot

• $15M revenue; reported EBITDA of $1.9M, adjusted EBITDA near $2.4M after add-backs
• Add-backs include above market owner compensation, family payroll, and one time systems spending
• Roughly 35 tractors and trailers, largely written off through bonus depreciation
• Warehouse held in a separate LLC, appraised near $3.6M
• Top customer is about 34% of revenue; the top three are about 60%
• $2.1M in personal investable assets and a $230,000 annual spending target

The Challenge

Specialty logistics companies at this size trade on adjusted EBITDA, and every add-back gets argued in diligence. Customer concentration is the bigger problem: a buyer will not pay a full multiple for a company where one account is a third of revenue, so price gets rebuilt as structure, with money held back until the accounts prove sticky. The buyer also wanted an asset sale for the depreciation step-up, which pushes recapture on a nearly fully written off fleet onto Ray as ordinary income. And the warehouse forced a fork: sell it with the company, or keep it and become the buyer's landlord.

Our Approach

We pressure tested the add-backs before the buyer could. With Ray's CPA we documented each one: the above market salary, the family payroll, the one time systems project. Diligence ultimately supported about $2.3M of adjusted EBITDA. At the 4.5x to 5x range under discussion, that framed roughly $10.5M to $11.5M of enterprise value before concentration entered the conversation.

Concentration was handled with structure, not denial. The negotiated package came to roughly $11M: $8.6M cash at close, a $1.4M seller note paid over five years, and a $1M earn-out tied to retention of the top three accounts. We ran the retirement plan on the close cash and the note only. The earn-out is modeled as upside.

The asset sale tax work centered on purchase price allocation under Section 1060. Dollars allocated to the fleet trigger Section 1245 recapture, taxed as ordinary income, and that recapture is recognized in the year of sale even when the price is paid on an installment note. We negotiated the fleet allocation within appraisal supported ranges, landing near $1.6M, and modeled an estimated $600,000 to $700,000 of year one tax from recapture and other ordinary items so the cash at close could cover it.

Ray kept the warehouse. The LLC signed a ten year triple net lease with the buyer at appraisal supported market rent of about $270,000 per year. That choice was designed to convert a deal contingency into durable income, keep a hard asset outside the transaction, and preserve later options for the property, including a sale or exchange down the road. This is not the right answer for every owner. A landlord relationship with your former company is still a relationship.

Then we sequenced the tax years using our Compound Cultivator methodology. The installment note spreads capital gain across six tax years, which was designed to keep most of the gain out of the top bracket. The years between close and Medicare become planning years: partial Roth conversions in lower income years, watched against the two year lookback that sets Medicare premium surcharges (IRMAA) starting at age 63.

Projected Outcomes

A price rebuilt around concentration: Structuring $2.4M of the roughly $11M package as a note and a retention earn-out was designed to get the deal closed at a defensible headline, while the plan itself relies only on the $8.6M at close and the scheduled note payments.

Recapture planned, not discovered: Modeling the Section 1060 allocation in advance was designed to reserve an estimated $600,000 to $700,000 for year one tax under conservative assumptions, so the first spring after close would not force portfolio sales.

A warehouse that pays rent: The ten year triple net lease could potentially provide about $270,000 of annual pre-tax income, covering a meaningful share of the $230,000 spending target before portfolio withdrawals begin.

Installment timing that smooths brackets: Spreading the note gain across six tax years instead of recognizing everything at once was designed to potentially reduce lifetime tax by an estimated $150,000 to $250,000 under conservative assumptions.

A conversion window before Medicare: Lower income years between the sale and age 63 were mapped for partial Roth conversions, designed to potentially reduce future required distributions and Medicare premium surcharges later in retirement.

Methodology

This illustration is a hypothetical composite, not a real client, and all figures are illustrative. An exit of this shape runs on a multi year clock. In a live engagement we would model the deal quarterly through diligence, coordinate the allocation and installment mechanics with the CPA before signing, then move to annual reviews: note payments, lease income, conversion amounts, and spending get re-planned every year against actual results.

Related Reading

• Selling Your Business
• The IRMAA Cliff Explained
• Retirement Isn't an Age, It's a Cash Flow

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