Transportation and Logistics M&A

Overall, mergers and acquisitions activity within the trucking, transportation and logistics market has been flat or slightly declining in 2019. That trend is expected to continue through the balance of the year for a number of reasons.

While e-commerce and condensed consumer delivery expectations are fueling growth, tariffs are slowing import traffic and adversely impacting volumes. Industrywide, downward pricing pressure continues. Meanwhile, driver shortages are still a top issue and firms using independent contractors remain under heavy scrutiny.

Another challenge comes in the form of fuel expense, which continues to rise due to commodity price stabilization and higher taxes, thus pressuring profit margins. At the same time, technology investments continue to rise, particularly in the areas of driver safety and compliance, fleet management and migrations to customer-centric cloud platforms.

The trend toward adopting green initiatives continues to add cost to fleet additions as many firms try to incorporate alternative-fuel vehicles to enhance efficiencies and satisfy customer requests and demands. Finally, industry consolidation continues as smaller firms, outside of certain specialty niches, are challenged to compete and invest.

Recommendations for Investors

Whether it’s preferable for a logistics or transportation company to be asset-heavy or asset-light depends on the nature of the sale. Both of these platforms are needed to move freight. Asset-heavy transactions are valued approximately one-third less from an adjusted EBITDA multiple perspective; however, they do offer significant downside protection given the liquidation value of the fleet assets. Asset-light transactions are viewed more favorably because the significant annual investment in fleet assets is eliminated. Relationships and niches typically drive the premium in asset-light transactions, making retention of key employees and customers a critical factor.

For sellers, it’s wise to market companies with sell-side due diligence in hand because often it leads to enhanced value. The potential financial and compliance surprises during diligence are usually removed, which helps improve initial valuations, increases the certainty of closing value and can speed time to close. Key areas of focus continue to be state and local taxation, employee versus independent contractor reporting, revenue recognition, and capital lease and operational lease accounting standards, along with overall financial integrity.

Overall, the broad M&A landscape continues to be a seller’s market with near record-high valuations. The trucking, transportation and logistics market will continue to consolidate, offering PE and growth-minded companies an opportunity to build some exciting, accretive enterprises. This industry continues to change and disrupt the norms of the past with technological advancements, including autonomous fleets using artificial intelligence and drone delivery. Innovative and operationally intensive companies will emerge as winners in this future state. Companies will continue to outsource delivery, warehousing and more, thus focusing on their core competencies, opening the door for more—and new—customer acquisition opportunities within the industry.