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Trucking companies' hard work of 2020 may pay off in 2021 M&A deals

Feb. 2, 2021
While much of the world was on hold because of the COVID-19 pandemic in 2020, the Tenney Group expects a pent-up desire for buyers looking to acquire trucking and logistics companies in 2021.

After most of 2020 was full of trucking and logistics companies grappling with the challenges of the COVID-19 pandemic, 2021 could be the year that many of those companies’ owners cash in on their hard work.

“Deals get done when a buyer has a need that is met by the seller and the seller's need is met by what the buyer brings to the table; that is just a truism that we see happening around these deals,” said Eric LeMarbe, managing director of the Tenney Group, a transportation merger and acquisition (M&A) advisory firm. “What we saw last year is needs changed dramatically in lots of different directions.”

LeMarbre and Tenney Group CEO and president Spencer Tenney spoke during a Jan. 26 Truckload Carriers Association webinar on recent trends in trucking and logistics mergers and acquisitions.

While much of the world was on pause because of the COVID-19 pandemic in 2020, LeMarbe expects a pent-up need for some fleets to complete sales and acquisitions in 2021. Despite the uncertainties, the following major trucking deals were finalized in 2020:

  • James Richardson & Sons acquired Bison Transport
  • Penske Logistics acquired Black Horse Carriers
  • NFI acquired CAI Logistics
  • XPO acquired a division of Kuehne and Nagel (European Logistics)
  • J.B. Hunt acquired RDI Last Mile
  • Fraley & Schilling acquired KBT Enterprises
  • Kenan Advantage Group acquired Fort Transfer Co.
  • FastFrate Group acquired Bestway Cartage Limited
  • NewSpring Capital/USPack acquired Freight Rite

Eighty-nine publicly reported deals closed in 2020 that involved the sales of trucking and logistics companies, according to Capital IQ. Tenney said this number doesn’t include smaller deals involving fleets with fewer than 50 trucks.

Since 2018, more than half of the potential buyers looking into transportation company deals were strategic (56%), according to the Tenney Group’s data for offers received. About a third of the groups kicking the tires on transportation companies over that timeframe were private equity firms without a platform (32%), which Tenney said means the acquiring company was “industry agnostic.” About 6% of the potential buyers were private equity with a platform, which would be a logistics company acquiring another logistics company; another 5% since 2018 have been by private investors.

While private equity firms have shown a lot of interest in trucking and logistics companies, Tenney group sees strategic acquisitions as the actual buyers. These have made up two-thirds of real offers since 2018. And while private equity firms without direct ties to trucking have shown a lot of interest in buying transportation companies (32%), just 7% of actual offers have come from these types of firms. Private equity companies with ties to the industry have made up 21% of offers to buy trucking companies, according to Tenney. Another 5% of offers have come from private investors.

“The main takeaway is that even with all the private equity surge of interest, it's still not tracking in terms of deal volume," Tenney said.

But he added that doesn't mean private equity deals won't be struck this year. “If you look at the top line, 88% roughly is still coming from people that are already invested either directly in or in a related industry of trucking and logistics.”

Tenney Group has worked on the actual offers since 2018. Tenney analyzed how these offers were structured: 68% average total percent of cash in offers, 34% average percent of earnouts, and 28% average total percent of seller financing in offers.

Tenney explained the cash portion of the offers could include equipment financing, debt assumption, or anything else that equates to cash for the seller.

Looking closer at just financial buyers — groups that don’t have direct trucking and logistics ties — Tenney said, breaks down the offers to 63% cash in the average offer, 35% earnout in the offer, and 22% “roll forward equity” in the offer. “That's basically when the offer extends as a substitute for cash: ‘I'm going to give you the equivalent of that value in stock in my existing company or the new company that we create together.’”

For strategic buyers, the offers Tenney has been a part of have included an average of 71% cash and an average of 31% earnout/seller financing offers. “I think what's interesting — some people get it upside down, they think that the private equity has all the money, whatever the deal is — they're actually going to be a little bit more risk-averse than sellers when it comes to cash.”

Tenney said when COVID-19 changed the world in March 2020, it put potential trucking and logistics sales on hold. It wasn’t because COVID hurt their business case, Tenney said; it was because COVID made the business so complicated, they had to put their plans on hold. “There was just so much required of them to navigate the challenges, the disruptions, the re-networking of all things that made the business go,” he said. “They didn’t being that process.”

From March through the end of 2020, many potential trucking industry sales were left in limbo. “As we somewhat expect trucking, transportation and logistics to get back to normal, we expect an even higher level of activity,” LeMarbe said of 2021.

Tenney said there 2020 created a supply shortage of available trucking and logistics companies to purchase. That small supply was a part of why sellers gained more leverage during the pandemic. But Tenney stressed that this didn’t lead to a significant spike in value. Instead, private equity groups that had money they “had to spend” got more aggressive. These two aspects of the market combined with low-interest rates drove the pursuit of acquisitions.

“A lot of these conversations are about the transfer of risk,” LeMarbe said of buyer-seller negotiations last year. “What we saw is buyers taking different types of risks, as they felt like they could hedge them with burnout, or cheap financing or different things. The buyer profiles and their strategies shifted some in 2020. And the key question now is, what is that going to mean for 2021?”

The Tenney Group is anticipating a 20% increase in trucking and logistics deal volume in 2021. “So I think you're gonna see new private equity players step up and kind of fill out that 20% growth as well,” Tenney said.

Valuations are already up 10% for companies with more than $50 million in revenue — what values remain stable for companies with less revenue.

“This is not your grandfather's trucking industry with how complex and sophisticated it has become is quite remarkable,” Tenney said. “The reason why the valuations are going to go up is that it's not just about margin anymore — it's about talent. “It's about who's going to help us go to the next level. It's very difficult for the companies below that ($50 million) threshold, to create that belief.”

The trucking and logistics companies creating more revenue can significantly impact the acquiring company, which creates less risk. “There will always be a premium applied to the ones that present the greatest impact and the lowest risk,” Tenney said. “The lowest risk attracts the highest outcome.”

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