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Opinion: Big players, real estate, and more forces behind M&A activity

Posted: April 8, 2019 by Mike McCarron

While researching my annual column on Canadian trucking mergers and acquisitions (M&A), I went back and read last year’s commentary to see what changed.

Back then I said the activity revolved around two things:

  • “Big carriers continued their sprint to scale, looking for plug-and-play tuck-ins that add customers, drivers, and coverage.”
  • “With the demand for commercial real estate at an all-time high, decisions to sell will be motivated more by real estate than transportation.”

This year, the big boys and dirt continue to be major drivers in a vibrant marketplace for consolidation. What I said last year is still true today.

But there have also been a lot of changes, with more looming. They are affecting the active M&A market, too.

Red hot freight brokers

With last year’s mandate of electronic logging devices (ELDs) swirling about in the U.S., no carrier wanted to buy a broker and take on freight that exceeded their available capacity.

Those supply-and-demand winds have shifted.

On the supply side, transactional freight brokers are getting nervous about the sustainability of their business model. They’re not blind to the billions of Silicon Valley dollars being invested to “technology out” transportation middle men. Brokers see what’s happening to retailers (Amazon), hotels (Airbnb), taxis (Uber), and other industries, and fear that they’re next.

On the demand side, freight brokers with high margins, scalable customers, and pliable owners are coveted by carriers and fellow brokers alike. Sellers that run a process are getting more offers, higher valuations, and better terms than at this time last year. Even brokers with small sales territories are being hunted down to replace outside sales reps and direct customers that truckers struggle to find.

Sector cross-pollination

CN’s acquisition of the TransX Group of Companies is a sign of more “sector cross-pollination” to come.

Shipping lines, airlines, and logistics firms are looking to get into the trucking game to deepen their supply chain capabilities, get more of their customer’s spend, and take back outsourced business.

Having more transportation sectors with companies interested in hauling their own over-the-road freight should be a boon for truckers looking to cash out or retire.

A busy small/mid market

The small and mid-size fleets with fewer than 100 trucks are officially active buyers as well. Money is cheap and many fleets are sitting on cash they are anxious to spend, just like the big boys who have been gobbling up their market share.

One thing I find interesting is the number of deals that are never announced. Many nervous first-time buyers prefer anonymity and go along their merry way by quietly tucking in their acquisitions.

The “R” word

Who knows what to make of the economic slowdown being predicted by the major news outlets? But I do know that an economic slowdown would reduce the selling price of trucking companies.

During a recession there are fewer buyers as companies shift gears to focus on internal matters, like tightening their belts and preserving cash flow. With less competition, active buyers look for the bargains that emerge during a recession. Lots of carriers I’ve been speaking with are scared that, if they don’t get out soon, they could be stuck for years to come — or be trapped in a buyer’s market.

One thing that hasn’t changed this year is the value of companies. They’re all worth exactly the same as last year — what someone will pay for them.

Mike McCarron is the president of Left Lane Associates, a firm that creates total enterprise value for transportation companies and their owners. He can be reached at mike@leftlaneassociates.ca, 416-551-6651, or @AceMcC on Twitter.

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