Why smaller is better in trucking acquisitions

Motor carriers were squeezed by the recession like never before. With a tentative recovery in hand, how will they start to grow again in 2010? In this second part of my interview with Mark Seymour, head of the Kriska Transportation and a former chairman of the Ontario Trucking Association, we take a look at the hard road ahead.
MT: A large part of the reason why there was such downward pressure on rates is because available capacity was considerably larger than the demand for transportation during the recession. There were a lot of new entrants in the years before the recession that contributed to this excess capacity. Will there be enough barriers to entry during the recovery to keep capacity from growing out of control once again?
Seymour: I hope there will be enough barriers to entry for new players and barriers to growth for existing players. Typically, what would keep you from getting in or bigger is banks, finance and insurance companies. I think those institutions will have to repair some of the damage they’ve inflicted upon themselves and for anybody trying to get in now, that may prove to be much more difficult. But we also can’t discount the growth we saw from established players. There was just a lot of growth in the industry.
MT: Despite the difficulties of the past year, Kriska did manage to grow. Tell me about your acquisition of Clark Transport. What does it add to Kriska’s capabilities and why was it a good fit?
Seymour: Clark Transport was an eastern Ontario based company and their business was primarily in the temperature controlled market and it was a good fit for what we do from a customer perspective and a network perspective. It added quality people and quality customers and that’s what we look for with our acquisition strategy.
MT: About a year ago you also purchased TL carrier BMD Transportation. Why did that purchase make sense for Kriska and how has that purchase worked out?
Seymour: It has worked out very well. It’s the same principle, with an eastern Ontario based company with good people and customers and strong relationships. It added more scale to our company and was very complimentary to what we already did. Both BMD and Clark were merged immediately with Kriska because they fit so well; there wasn’t duplication in terms of terminals and customers and equipment. Anything that we do these days is with scale in mind. If you are doing something, it’s always in your best interest to do more of it and get more scale. It helps diversify our business as well.
MT: Why does there seem to be a preference to pick up fleets of this size rather than pursue much larger acquisitions?
Seymour: In my opinion, nobody can afford to make a mistake right now. The bigger the nut, the bigger the risk. Mergers or standalone share purchases can be very distracting. They can also be very disruptive to customers and employees, so you have to be very careful. So I think the smaller the acquisition, the less dramatic and risky it can be. But at the same time there can be benefits. To go into the market today and try to grab $3 million or $5 million of new revenue is very difficult. An acquisition, if you do it right and convince the customers you are going to do it right, brings you that. We believe we have to continue to look for such opportunities that are of low risk. If you don’t grow you are going to shrink.

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With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics.

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