Carriers need M&A strategy

Carriers need M&A strategy

With merger and acquisition (M&A) activity projected to grow substantially in the transportation and logistics market –and especially within the trucking industry – experts say carriers will need to craft a solid strategy if they expect to benefit

With merger and acquisition (M&A) activity projected to grow substantially in the transportation and logistics market –and especially within the trucking industry – experts say carriers will need to craft a solid strategy if they expect to benefit.

“Indications point to a significant increase in M&A activity within our industry,” Dick Clepper, senior M&A advisor with the Woodbridge Group, told Fleet Owner.

“The interest seems to be both with vertical and horizontal integration,” he said. “Some are interested in adding capacity within their current industry segment, [while] others are looking for new opportunity within a different segment of the trucking industry.”

Research by global consulting firm PricewaterhouseCoopers (PwC) also indicates M&A activity within the transportation and logistics sector should stay on the upswing, buoyed by strengthening capital markets, growing interest from financial investors, and stronger corporate balance sheets.

While the pace of transportation and logistics deals with value greater than $50 million flattened early on this year, it’s now matching that of 2010 -- which PwC said was “a very robust year” in terms of M&A deal volume. The firm reported the number of M&A deals of over $50 million increased to 37 in the first quarter of 2011, totaling $8.2 billion, compared to 36 deals worth $17.3 billion during the same period in 2010.

“First quarter [2011] deal activity was largely driven by smaller deals, as transportation and logistics companies concentrated on consolidating local markets,” said Kenneth Evans, U.S. transportation and logistics leader for PwC.

“Strategic acquirers have shifted their focus from internal initiatives – bolstering balance sheets and increasing their cash positions – to executing M&A strategies to help drive their growth,” he said. “With the consistent pace of announced deals in the sector, we are optimistic that the deal volume for the balance of 2011 will be robust by historical standards, even following an extremely strong finish to 2010, which saw 48 deals and $36.4 billion in the fourth quarter alone.”

Woodbridge’s Clepper said trucking companies that improved their liquidity and cash position during the recent economic downturn will be positioned to make effective strategic acquisitions to further improve competitive advantage.

“Certainly the forward view of the trucking industry provides a clearer picture for M&A activity as compared to the state of the industry just a year or two ago,” he said.

Trucking industry demographics indicates that there are many smaller, privately held companies with less than 200 drivers owned by people currently in their 60s, Clepper pointed out. Some of those carriers already having legacy transition ownership plans in place, but others lack them.

“With the forward view of positive industry opportunity, the trucking company owner would be wise to develop an effective financial plan that would include selling the company rather than waiting for the next economic downturn and, possibly, be forced into a ‘need to sell’ situation,” he said.

Stu MacKay, president of market research firm MacKay & Co., added in a conference call with reporters earlier this week that he expects consolidation only to continue picking up speed within the trucking industry, especially for TL carriers.

He noted that the top 10 for-hire carriers in 1988 accounted for only $17 billion worth of the industry’s revenue, with companies such as Schneider National and J.B. Hunt Transport Services only booking $393 million and $304 million, respectively, in gross revenues.

By 2009, however, the top 10 for-hire carriers accounted for $59.6 billion of the industry’s total revenue, with Schneider booking $2.9 billion and J.B. Hunt $3.2 billion.

“We’ve had dramatic consolidation and shake out in this industry – with more to come,” MacKay said. “Indeed, of the top 100 carriers in the U.S. back in 1979, only 13 are left, with seven still independent and OK, two acquired and OK, and four merged and in [financial] trouble.”

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