With the economy finally showing signs of recovery, it looks like the passion for mergers and acquisitions has also begun to return to trucking's corner of the business world. The big news last month, of course, was Yellow's acquisition of Roadway. Coming just 10 months after Consolidated Freightways' bankruptcy, the move means that in less than a year we've gone from the Big Three of LTL to the Big One.
On the very same day as the Yellow-Roadway announcement, component supplier ArvinMeritor made a public, and unsolicited, bid for Dana Corp., one of its two rivals in that business. As we went to press, Dana's board had strongly rejected the initial offer. However, the final decision rests with its stockholders. Adding to the uncertainty, Dana already has a joint marketing agreement with the third supplier, Eaton Corp., under the Roadranger name, and no one is sure what would become of that partnership if ArvinMeritor is successful.
What does seem certain is that trucking is about to enter a renewed round of consolidation, since one merger often triggers a series of reactions from smaller competitors. With combined annual revenues of $6.6 billion, the Yellow-Roadway joint operation has to concern remaining LTL competitors such as ABF and Overnite. Will they begin searching for new partners to help them match the scale of Yellow-Roadway? And what about the regional carriers? Will they begin looking for alliances with those remaining national operations?
Although the scale is smaller, the TL segment of the industry is also showing signs of renewed consolidation. While M&A activity may never return to the levels witnessed in the early 1990s, the recent purchase of Merit Distribution by Swift could signal a new round of TL growth by acquisition.
Consolidation doesn't always involve acquisition. On the supplier side, DaimlerChrysler's recent reorganization brings its engine maker Detroit Diesel under the Freightliner umbrella as it moves all of its powertrain component operations to its truck group.
The end result of this renewed two-into-one activity will depend on the consolidators' goals: Do they want to decrease costs or increase revenues? As one M&A player points out, those are not the same thing.
For example, Yellow's CEO says the merger will decrease back-office costs, which would either give it higher profit margins or the ability to cut rates in a quest for greater market share. Wall Street analysts, however, believe the new company intends to use its size to expand into international markets. Two very different scenarios with very different impacts on competitors.
As for suppliers, consolidation is almost exclusively about cutting costs. The benefits for fleets are obvious in lower equipment cost and/or improved technology supported by higher volumes, although there is also an inevitable trade-off in limits on spec'ing choices.
Trucking's drift toward supersizing seems inevitable. The recession simply put consolidation on hold for a few years, and it's only taken the first hints of economic recovery to kick it back into gear.