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Weak freight market doesn’t slow ‘incredibly active’ 2023 mergers

July 17, 2023
Tenney Group, broker of some of the larger transportation and logistics deals so far in 2023, reviews mergers and acquisitions midyear as a soft freight cycle continues to depress revenue and earnings at some carriers.

Plenty of big names, including some high-ranking FleetOwner 500 companies, have been involved in mergers and acquisitions through the middle of this year, but current market dynamics—slumping spot rates, softer demand for freight haulage, excess truckload capacity, even an uncertain used commercial vehicle pricing—are making the environment for M&As more complex, a leading transportation and logistics advisory firm said in its midyear report on merger activity in 2023.

The M&A market has been active, even as the new Tenney Group midyear report notes that freight transportation faces significant headwinds.

Just this month, Phoenix-based Knight-Swift Transportation, the No. 3 company on the FleetOwner 500: Top For-Hire Fleets of 2023, closed on its acquisition of Chattanooga, Tennessess-based U.S. Xpress, the No. 20 FleetOwner 500 for-hire fleet, in the marquee deal of the year so far, the Tenney Group midyear report notes. The transaction had an enterprise value of $808 million. U.S. Xpress shareholders received $6.15 per share in cash, more than four times the going price when the acquisition was announced.

TFI International, the No. 9 for-hire FleetOwner 500 company, in February, wrapped the acquisition of Montreal-based Axsun Group, a North American provider of intermodal and freight brokerage services.

In two deals brokered by Tenney Group (which primarily represents sellers), Lafayette, Louisiana-based Dupré Logistics (No. 146 on the FleetOwner 500) this month acquired truckload brokerage Interstate Transport and Shelbyville, Tennessee-based Big G Express (No. 181) acquired RTR Transportation in late February.

See also: NCD acquires Colonial Wholesale Distributing

In May, French transport and logistics company Geodis expanded its drayage capabilities by acquiring a Miami-based drayage firm, Southern Cos. In April, Tampa-based Boasso Global, the No. 263 FleetOwner for-hire 500 company, bought New Jersey-based Linden Bulk Transportation from Odyssey Logistics & Technology.

Also in early February, Hattiesburg, Mississippi-based Jones Logistics announced the acquisition of central Tennessee's Nationwide Express, which provides dedicated trucking services, warehousing, third-party logistics services, recycling transport, and waste management solutions.

In January, Trucking and 3PL provider RoadOne Intermodal added to its footprint in the Southwest by acquiring Texas-based carrier The Transporter. In May, R&R Express bought North Carolina- and Tennessee-based truckload carrier Taylor Transportation.

What's affecting merger activity in 2023

In an early July webinar that accompanied the midyear report, Tenney Group CEO Spencer Tenney, TrueNorth Principal and Practice Leader Dan Cook, Heidi Hornung-Scherr, president of transportation boutique Scudder Law Firm, and CPA and adviser KSM Director Michael Fennerty reviewed the report, which was authored by Tenney's senior analyst Zach Haggerty, calls the 2023 M&A market "incredibly active" through "compressed" spot rates, softer demand for freight haulage driven by elevated inventories and slower spending, weaker used truck pricing, and excess truckload capacity as a result.

Even contract rates, normally less susceptible to pop-up economic storms, are under pressure, with contract "renewals experiencing a significant decline year-over-year," the report notes. "This is resulting in [year-over-year] declines in revenue and earnings for both asset-based and asset-light [truckload and logistics] companies," the Tenney midyear report notes, affecting the M&A environment.

The Federal Reserve raising the target federal funds rate in May 2023 and debt pricing rising in the first quarter of 2023 versus the fourth quarter of 2022 also made M&As more expensive and reduced return on investment.

See also: Transervice Logistics owner ZS Fund acquires Lily Transportation

Omaha business lawyer Kolly Jessen noted in the Tenney M&A report: "The recent market dynamics have had a direct impact on M&A deal terms. In order to bridge valuation gaps and return on investment risk, buyers are utilizing what have historically been referred to as more 'buyer friendly' deal terms to close deals."

The Tenney report concludes: "In short, current freight dynamics are driving softer T&L operating performance, combined with a more difficult lending environment is creating a more challenging M&A market [year to date]. That said, there have been some major acquisitions by strategic carriers … most notably [the Knight-Swift purchase of U.S. Xpress]. In addition, a tougher freight environment is often an opportunity for strong operators (especially ones with cash) to grow inorganically by acquiring struggling companies at lower valuations."

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