This industry can be all about who you know and the Fullers and the Scudders go way back — generations back.
Craig Fuller’s grandfather and Mark Scudder’s father first worked together pre-deregulation in the 1960s with some of the original families involved in the American freight industry.
Since then, Scudder Law has become one of the leading firms for companies hoping to acquire new capital, change their investor structure or even open up for public investing.
Scudder, CEO of Scudder Law Firm, appeared as a guest on the FreightWaves CEO’s Fuller Speed Ahead Wednesday as part of the FreightTech Venture Summit.
Scudder said the biggest change he has seen with companies’ desire to acquire has come with the evolution of individual companies developing specialized logistics arms while continuing to deal with third-party firms.
Those acquisitions and the process of a successful integration depend on the acquiring company’s understanding of what they’re getting — specifically the quality and sustainability of the business.
Scudder cited the recent Knight-Swift merger as a great example of success, saying it works because both teams were operating at such a high level that bringing the teams together readied them for the next step.
When it comes to Scudder helping take companies public, he said a company needs three things:
- Good financial management and practices.
- Good operating practices and systems already in place.
- A willingness to commit to the governing format public investors are seeking.
Investors are seeking more than just a successful governing format, they are also looking for a strong market growth to have an understanding of their expected cash-flow growth.
Scudder said strong cash flow can be found in the private equity market. It’s where the investors can have enough influence on the company so that they are always looking at what’s next for their group. For asset-based companies, they need to have operating space in a high profit margin or operating space in acquisition growth for investors to see the value in investing.
Then there’s the hot topic in the room: digital brokerages and what they mean for the investing community.
Scudder said the appeal of digitizing brokering is all about cost savings but that you lose personal touches gained from relationships and that deciding which route to go can be dependent on the type of freight.
“There’s a lot of freight, and you’d call it not quite as hot of freight or as specialized of freight that can be matched up digitally,” Scudder said.
He went on to talk about the volume of matching digital brokers can do.
“A company that their digital system can match 47 loads per day and the in-person broker can match about six per day — so if you’re talking about 47 loads versus six loads per day, that’s a huge difference in revenue you can drive over a largely fixed-cost model.”
So what does that mean for companies going digital? It’s all in the margins.
Scudder said he expects digital brokerage margins to get even smaller as they lower costs but raise volume with specialized or established brokerages being the exception to that.
“It’s my personal opinion but I think you’ll see overall brokerage margins fall into the single digits in the next five, six years.”
Of course, all of this can change on the dime depending on the market.
Scudder wrapped up talking about the changes in investor strategy and the recent return of SPACs, saying, “Some investors have decided to take money off the table and take risk off the table so they can get to the market quicker.”
Scudder’s final thoughts on SPACs — special purpose acquisition companies:
- They’ve given access to companies that may have not typically been in the place for acquisition.
- They allow for a change in quality and size of investors to add to their credibility.
- Investors’ ability to withdraw votes or capital if they don’t agree with decisions has also been helpful.
Despite the cyclical nature of SPACs and the transition away from the standard IPO, Scudder still believes there’s room for continued market growth.