Ever since the end of the Great Recession, industry executives have been talking about the need to consolidate the industry as a way to soak up excess capacity, provide top shippers with the large scale transportation network they desire, and act as protection against downward pressure on rates. For just as long we in the media have been speculating about when that blockbuster deal would happen or if it would.
Well, it just did with the announcement that Canada’s largest trucking firm, TransForce, has made a friendly, board-approved takeover bid for Contrans, another of Canada’s largest, publicly traded trucking firms, as reported first on our website www.trucknews.com. Until now we had seen markedly smaller deals. Executives from large fleets may have desired growth by acquisition, and there may have been numerous acquisition targets as the Baby Boomers who started many of our industry’s small and medium-sized enterprises approached retirement age, but most top company decision makers seemed more comfortable with less risky bolt-on type acquisitions.
The TransForce-Contrans deal is on a much different sale, totaling an equity purchase price of about $495 million. Does it carry within it the seeds for future success? The industry analysts we spoke to think so.
Doug Nix of Corporate Finance Associates, a speaker at our Surface Transportation Summit last year, felt it was a strong strategic fit. Contrans’ strategy has been to build a specialty carrier operation, but without looking south to the USA, it would have been hard to grow beyond where they were. So unless Contrans executives Stan (Dunford) and Greg (Rumble) were going to change strategy, selling was the best option, Nix believes.
RBC Capital Markets, in a report issued by analyst Walter Spracklin, also found the deal to be a good one. “In our view, this deal is compelling from a strategic perspective as we consider (Contrans) to be a best-in-class truckload operator with a strong position in niche markets. Accordingly, we believe TFI stands to gain a competitive edge in TL markets across Canada. From an operating point of view, this transaction offers density and scale in the North America truckload market.”
Both of our own columnists who comment on such issues, Mike McCarron, who heads Wheels Group’s M&A, and Mark Borkowski, president of Mercantile Mergers and Acquisitions, believe Transforce’s bid for Contrans is proof a major transportation consolidation is taking place in the North American market and that the deals will get bigger and more numerous. The market has become so competitive that only the big will thrive and survive, they believe.
Personally, I’m going to take a wait and see approach to this one. Contrans, according to every analyst I’ve spoken with over the years, is indeed a well-managed company. Transforce has built a reputation over the years for choosing relatively well-run companies and letting them do their thing, at least initially. But, as mentioned from the outset, this is a big deal for the Canadian market. There is a great deal of resources that will have to come into play to ensure it’s a smooth transition into the new reality for both companies involved. Often mergers of this scale run into difficulties not because they don’t make sense on paper but because of cultural differences between the organizations. I still recall my conversation with Yellow Transportation president and CEO James L. Welch as his company was merging with Roadway in the blockbuster deal that hit the industry south of the border about a decade ago.
Welch was quick point out “the road has been littered with nothing but disasters when companies try to merge” but argued the difference between what Yellow-Roadway were doing and what happened before is that in the past it was usually a healthy company acquiring or merging with an unhealthy company. Their situation was “very different” he assured me, adding “You have two very healthy companies that are very well respected in the marketplace and are doing things to make their companies successful. What we want to try and do is grow both companies.”
I remember Welch as a very likeable gentleman. But we all know how that deal worked out.
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