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Will the mountain of logistics M&A money find places to go?

Too few transport and logistics sellers to match the capital, experts said

With 2021 just around the corner, a mountain of mergers and acquisitions capital is sitting on the sidelines waiting to be deployed in the transport and logistics arena. The question now is, will the money hit the field or will it remain on the bench?

The message coming from strategic buyers — firms that already operate in the transport and logistics space — and from private-equity companies alike is that they are ready, willing, able and eager to consummate deals. The ardor is so strong for some strategic buyers, in fact, that they would be willing to make deals without holding in-person meetings, another unprecedented event during an unprecedented year. 

That doesn’t sit too well with traditionalists like Robert Farrell, chairman and CEO of non-asset-based third-party logistics (3PL) provider GlobalTranz Enterprises. “It’s difficult to present your company in a four-hour Zoom call,” Farrell said during the 3PL Value Creation North American Summit, put on digitally by research and consulting firm Armstrong & Associates Inc.

There is little doubt that the COVID-19 pandemic has raised the profiles, and valuations, of transport and logistics firms that possess problem-solving platforms. This has created a dilemma for traditionalists like Farrell. “We’ve lost deals to private-equity firms and we’re shocked at what they’re paying,” he said.

The shock may linger for some time, said Jason Bass, managing director of investment banking firm Harris Williams & Co. “Valuations will remain high,” Bass said. Even so, “deals are still getting done,” added John Anderson, managing partner of Greenbriar Capital, a private-equity firm that owns global freight forwarder Seko Logistics and East Coast regional parcel-delivery carrier LaserShip.

Acquirers will remain selective in their deal-making. For example, GlobalTranz has focused its scouting missions on companies with specific capabilities, such as the recruitment and on-boarding of logistics talent, Farrell said. GlobalTranz is also looking at potential acquisitions where it can directly add value to the acquired company, Farrell said.

Where GlobalTranz will not head is in the direction of asset-based companies, Farrell said, though he noted the company has been approached to explore the possibility of buying an asset-based firm. GlobalTranz will continue to commit its capital to the segments that it knows, he said.

Acquirers appear willing to look beyond the potholes of 2020 if they think a company has suitable long-term potential. But the companies that may attain top-dollar valuation are those that not only survived but thrived during the pandemic, said Bass.

Part of the dilemma is the dearth of available firms available to buy. “There’s a mountain of capital looking for too few companies,” said Jeff Kidd, director at Harris Williams.

One impediment to deal-making, ironically, is the bullish outlook for the industry and its players. “It’s harder to get operators’ and owners’ attention,” said Richard Metzler, president and CEO of Lone Star Overnight (LSO), a regional parcel-delivery carrier serving the Southwest, including every address in Texas. “They could be thinking is this the time they want to sell with business going really well?’” The parcel-delivery industry has been on fire since March as e-commerce demand has soared. LSO is one of several regional carriers that have stopped taking on new business for the upcoming peak season and whose first-quarter 2021 order books are rapidly filling up.

There is a massive spectrum of strategic and financial buyers out there. Companies looking to sell out may want to opt for a strategic suitor because they tend to pay more and they understand the business. Private-equity concerns, by contrast, typically want the acquiree’s management team to stick around for several years because they possess superior institutional knowledge.

Firms looking to put themselves on the market need to know that it will not be a slam dunk. Strategic buyers and PE firms with decades of logistics seasoning are smart and experienced. Still, that shouldn’t deter sellers that have a good story to tell, especially in what has become a sellers’ market. “We are open for business,” said Anderson of Greenbriar Capital.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.