Protect your acquisition with a structured review of facility condition, customer contracts, real estate ownership, and technology infrastructure before closing.
Acquiring a storage and warehousing business in the lower middle market requires evaluating both an operating company and, frequently, a significant real estate asset. Buyers must assess customer concentration and contract durability, facility condition and capital expenditure needs, real estate ownership or lease structure, warehouse management system capabilities, and workforce stability. This checklist guides private equity firms, logistics entrepreneurs, and owner-operators through the critical diligence steps needed to avoid costly surprises and structure a deal that reflects true enterprise value.
Evaluate the stability, concentration, and contractual basis of storage and handling revenue to assess business durability post-acquisition.
Request a full customer list with revenue by account, contract status, tenure, and renewal dates.
Reveals concentration risk and whether revenue is contractually protected or month-to-month.
Red flag: Top customer exceeds 40% of revenue with no long-term contract in place.
Review all storage agreements, service level agreements, and handling contracts for termination clauses.
Month-to-month agreements create immediate churn risk if the owner transitions out.
Red flag: Majority of agreements lack termination penalties or auto-renewal provisions.
Interview the top five customers to assess relationship ownership and satisfaction with current service.
Determines whether loyalty is tied to the seller personally or to the business operationally.
Red flag: Key customers indicate they follow the owner, not the company, in vendor decisions.
Analyze revenue trends by customer over the trailing 36 months for volume and pricing consistency.
Identifies organic growth, churn patterns, and pricing power in the local market.
Red flag: Revenue from top accounts is declining without a documented explanation or replacement pipeline.
Inspect the physical warehouse infrastructure to identify deferred maintenance, safety liabilities, and near-term capital investment requirements.
Commission a third-party property condition assessment covering roof, dock doors, HVAC, and flooring.
Deferred maintenance on core infrastructure becomes the buyer's immediate capital obligation.
Red flag: Roof is past useful life or dock levelers are non-functional on multiple bays.
Inspect and document racking systems for compliance with current load ratings and seismic standards.
Non-compliant racking creates OSHA liability and limits capacity utilization post-close.
Red flag: No documented racking inspection within the past two years or visible structural damage present.
Verify fire suppression system certifications and compliance with local fire marshal requirements.
Non-compliant suppression systems can trigger facility closure or costly retrofits post-acquisition.
Red flag: Suppression system certifications are expired or system does not meet current NFPA standards.
Request a full capital expenditure history for the past five years and identify near-term planned spend.
Establishes whether the seller has maintained the facility or deferred investment to inflate EBITDA.
Red flag: No documented capex history and facility shows visible signs of deferred maintenance throughout.
Evaluate the ownership structure, lease terms, zoning compliance, and environmental condition of the underlying industrial property.
Obtain a current commercial real estate appraisal and confirm clear height, square footage, and zoning classification.
Real estate value and usability directly affect deal structure and long-term cost competitiveness.
Red flag: Clear height is below 24 feet, limiting racking capacity and market competitiveness of the facility.
Review lease terms if real estate is not included, including rent escalators, renewal options, and landlord rights.
An unfavorable lease can erode margins and create relocation risk within the hold period.
Red flag: Lease expires within three years with no option to renew or has above-market annual escalators.
Commission a Phase I Environmental Site Assessment from a licensed environmental professional.
Prior industrial use can create contamination liability that transfers with property ownership.
Red flag: Phase I identifies recognized environmental conditions requiring a Phase II investigation.
Confirm zoning permits current and intended warehousing uses including any cold storage or hazmat operations.
Non-conforming use status can restrict expansion and complicate future financing or sale.
Red flag: Current operations include hazmat storage without proper zoning variance or permitted use approval.
Assess the warehouse management system, operational documentation, and automation readiness to evaluate scalability and transition risk.
Request a demonstration of the current warehouse management system and review data export capabilities.
A functional WMS reduces transition risk and supports customer retention through service continuity.
Red flag: Inventory and order tracking are managed via spreadsheets with no formal WMS in place.
Review documented SOPs for receiving, storage, picking, packing, and shipping workflows.
Documented processes enable manager-led operations and reduce owner-dependency post-close.
Red flag: No written SOPs exist and all process knowledge resides exclusively with the selling owner.
Evaluate equipment inventory including forklifts, pallet jacks, and conveyor systems for age and maintenance history.
Aging or undermaintained equipment creates operational downtime and near-term replacement costs.
Red flag: Majority of powered equipment is beyond expected useful life with no maintenance records available.
Assess cybersecurity practices and data handling for customer inventory records and billing systems.
Customer data breaches create liability and can trigger contract termination clauses with 3PL clients.
Red flag: Customer data is stored on unsecured local drives with no access controls or backup protocols.
Review staffing structure, labor costs, key person dependencies, and union exposure to assess operational continuity post-acquisition.
Obtain a full organizational chart with tenure, compensation, and role criticality for all employees.
Identifies key person dependencies and whether non-owner managers can run daily operations.
Red flag: Seller manages all customer relationships, scheduling, and vendor contracts without documented delegation.
Review payroll records and labor cost as a percentage of revenue over the trailing 24 months.
Rising labor costs in warehouse roles can compress margins if not reflected in customer pricing.
Red flag: Labor costs have grown faster than revenue for two consecutive years without corresponding rate increases.
Confirm whether any employees are covered by a collective bargaining agreement or union organizing activity exists.
Union contracts and organizing campaigns significantly affect labor flexibility and cost structure.
Red flag: Active union organizing campaign underway or existing CBA with unfavorable wage escalation clauses.
Review workers compensation claims history and OSHA recordable incident rates for the past three years.
High incident rates signal safety culture issues and inflate insurance costs post-acquisition.
Red flag: OSHA recordable rate significantly exceeds industry average or open workers comp claims are unresolved.
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Acquiring the real estate provides asset-backed collateral, long-term cost certainty, and additional valuation upside in supply-constrained markets. However, a business-only acquisition with a long-term NNN leaseback from the seller can reduce upfront capital requirements and make SBA financing more accessible. The right structure depends on your capital availability, the property's appraised value relative to asking price, and whether the lease terms are truly long-term and favorable. Most lower middle market warehouse deals offer both structures — negotiate hard on lease duration and escalators if you do not acquire the real estate.
Start by requesting a customer revenue breakdown for the trailing 36 months showing each account as a percentage of total revenue. Flag any single customer above 30% as elevated risk and above 40% as a potential deal-breaker without a long-term contract. Review the contractual basis for each top-five relationship — multi-year agreements with termination penalties are significantly more valuable than month-to-month arrangements. Also conduct direct outreach to key customers during diligence with seller cooperation to confirm satisfaction and intent to remain post-transition.
At minimum, the business should operate a documented warehouse management system capable of tracking inventory locations, handling receipts and shipments, generating customer reporting, and producing billing data. Cloud-based WMS platforms such as Fishbowl, 3PL Central, or Extensiv are common at this revenue scale. Absence of any WMS is a significant red flag because it creates customer retention risk and limits your ability to scale. Also assess whether the system integrates with customer ERP platforms, as integration depth increases switching costs and strengthens long-term account retention.
Lower middle market storage and warehousing businesses typically trade at 3.5x to 5.5x EBITDA depending on real estate inclusion, customer contract quality, occupancy rates, and facility condition. Businesses with owned real estate, occupancy above 85%, multi-year contracts, and a modern WMS command the upper end of that range. Facilities with deferred maintenance, high customer concentration, or aging infrastructure trade closer to 3.5x or below. When real estate is included, buyers should separately appraise the property and allocate value between the operating business and the real estate asset to avoid overpaying on the operating multiple.
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