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Factors in the M&A Equation

Posted: February 21, 2018 by Mike McCarron

On the one hand, things were status quo in the Canadian trucking mergers-and-acquisition space last year. Big carriers continued their sprint to scale, looking for plug-and-play tuck-ins that add customers, drivers, and coverage. When the carriers found them, they struck quickly: one major deal last fall was done from start to finish in less than a month.

On the other hand, several outside factors crept into the M&A equation last year, and they’re now having a lasting impact on activity. Buyers are still on the prowl but they’re more selective, especially in the small and mid-market sectors.

They have good reason. Here are some of the factors that will influence trucking mergers and acquisitions in the next 12 months.

ELD mayhem

No business book on the planet could have prepared you for the mayhem brought by mandated Electronic Logging Devices in the U.S. Thousands of trucks seemed to vanish from longhaul lanes on Dec. 18. In late January, DAT Solutions, the U.S.-based load board, reported load-to-truck ratios greater than 10:1 in the van market, meaning 10 available loads for every truck that was posted. Truckers on both sides of the border were scrambling to deal with unhappy customers and threats of mutiny from drivers.

Many who had planned to grow through acquisitions are holding off until the market gets more predictable. They have enough headaches of their own, and aren’t prepared to write a cheque to buy more.

Trump turmoil

The noise coming from blabbermouth Donald Trump about killing NAFTA sent many buyers and sellers to the sidelines last year. The thought of entire shipping sectors being wiped out by the U.S. president’s protectionist bent was just too risky. In fact, we saw multiple offers pulled off the table because of the fear of the unknown.

Not much has changed. The Canadian auto industry, and carriers that service the sector, are particularly vulnerable, and the possibility of higher tariffs could impact other manufacturing industries like cleaning products, electronics, and appliances. Carriers with a high concentration of freight in these areas are waiting with bated breath to see what comes out of the floundering NAFTA negotiations.

Real estate values

The value of dirt is a major ingredient in the trucking M&A recipe. Carriers who own their properties often have more wealth tied up in land than trucking. Selling their fleet means a double windfall.

On the other side of the spectrum are the carriers who lease their properties. Landlords are demanding (and getting) longer leases than ever. Consider the 57-year-old owner who wants to retire in three years but has a landlord pushing a 10-year lease.

With the demand for commercial real estate at an all-time high, I expect many truckers’ decision to sell will be motivated more by real estate than transportation, and many are having to make it a lot earlier than they had originally planned.

Soft on brokers

Last year at this time carriers were bullish on acquiring freight brokers. In the short term, Electronic Logging Devices have changed all that.

Carriers already have more freight than they can handle and now they’re getting calls directly from customers like never before, cutting brokers out of the middle. Carriers are nervous about the sustainably of the broker business model in this new reality. Instead of looking for deals, I expect carriers to wait until after the dust settles to see which brokers are left standing.

Three things about the M&A market haven’t changed from last year. There’s no shortage of aging truckers looking to cash out, they all want to know what their company is worth, and my answer is always the same — what someone will pay for it.

  • Mike McCarron is the president of Left Lane Associates, a firm that specializes in growth strategies, both organic and through mergers and acquisitions. A 33-year industry veteran, Mike founded MSM Transportation, which he sold in 2012. He can be reached at mike@leftlaneassociates.ca, 1-844-311-7335, or @AceMcC on Twitter.
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