Why it’s shaping up to be a record year for trucking and logistics M&A

It’s shaping up to be a record year for transportation and logistics merger and acquisition (M&A) activity, and valuations could reach a 10-year high.

That’s the view of Spencer Tenney, president and CEO of transportation M&A advisory firm Tenney Group. He, along with strategic advisor Davis Looney, were speaking to a Truckload Carriers Association audience by webinar this week.

5 M&A themes from 2021

Access to equipment driving deal activity and structure: Looney said the tight equipment market in 2021 has had an effect on the types of acquisitions in the space. He noted the value of a 2016 Freightliner Cascadia jumped from US$33,000 in 2020, to $66,000 in December 2021.

Meanwhile, fleets are struggling to secure build slots for new equipment due to supply chain disruptions. One buyer Looney worked with reduced its offer price by $6 million because the fleet it was pursuing was unable to maintain its traditional replacement cycle, which will result in higher future cap-ex costs.

Another paid a 20% premium because the fleet it was looking to buy had access to equipment and drivers in a key geographic area. “On both sides of the equation there was vast changes to how deals were valued and structured just because of the equipment front,” said Looney.

Cash is king: The cash component of transactions jumped from 68% in 2020, to 83% in 2021, Looney said. He attributed this to increasing buyer confidence. “Buyers and lenders became more comfortable with the risk,” he pointed out. Low interest rates also allow buyers to bring more cash to the table.

Private fleets as buyers: “Private carriers are making major moves,” noted Kenney, citing Ashley Furniture’s purchase of the 440-truck western division of Wilson Logistics as an example. “It’s not the first time private carriers have been expanding into the for-hire market,” he added, “what’s significant is the size of these transactions and the expectations around them.” He said it will be interesting to watch the execution as the private fleets attempt to integrate their for-hire fleet acquisitions.

Drivers are money: Some U.S. fleets are offering signing bonuses of up to $20,000. Others are instead buying well-staffed fleets. “Now, buyers are not as concerned about financial performance. They’re concerned about drivers and their ability to grow,” Tenney said.

More first-time buyers: Looney said there are more first-time buyers getting involved in M&A. For example, Werner Enterprises made the first two acquisitions in its history last year. He expects the trend to continue as organic growth becomes more difficult.

Shot of two businessmen shaking hands in an office
(Photo: iStock)

M&A trends to watch in 2022

Heading into 2022, Looney said equipment values will continue to rise, meaning offers will also rise. Fleets will also be forced to increase driver pay – or efficiency.

“The driver shortage and lack of being able to deliver new drivers and retain new drivers is forcing many companies to reimagine how they’re going to grow,” said Tenney. “Some are aggressive and bold in how they’re going to pay. Others are taking a different approach, focusing more on sequencing processes and how they make drivers more efficient, before making structural compensation changes that may be irreversible.”

Another emerging trend is the evolution of legal due diligence required in transactions. More focus will turn to the “explosive amount of data” being collected by fleets, and how that data is managed in respect to privacy laws.

Spencer said due diligence will also include deep dives into equipment replacement cycles and driver safety histories.

In terms of predictions, Looney said the transportation and logistics space is likely to see record deal volumes this year, as much as 20% higher than in 2021.

“There’s no getting around it, you pay the cost of not doing a deal or you pay the premium to get the deal.”

Spencer Tenney, Tenney Group

“Expect a lot of headlines over the next few months of some acquisitions closing in Q1 and it will stay strong and steady through the end of the year,” he predicted.

Tenney predicted the talent war and inflation will drive companies to turn to acquisitions in order to specialize. “There’ll be a major uptick in smaller but very strategic transactions,” he said, listing final mile as a sought-after specialty.

Tenney also predicted valuations will reach a 10-year high this year.

“Considering all the things that are driving the need to acquire, and the need to place a premium on those acquisitions to get deals done, we think it’s very realistic to think this will be the year – for both asset-light and asset-heavy – to realize maximum valuations,” he predicted. “Rising interest rates create urgency to get the best deals possible. A year from now, that same transaction may be that much more expensive. There’s no getting around it, you pay the cost of not doing a deal or you pay the premium to get the deal.”

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James Menzies is editor of Today's Trucking. He has been covering the Canadian trucking industry for more than 20 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies.

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