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Consolidation is unavoidable

The latest PwC quarterly report on mergers and acquisitions in the US confirms what we and other industry analysts been saying for several months now about the North American transportation market: It’s ripe for consolidation.


The latest PwC quarterly report on mergers and acquisitions in the US confirms what we and other industry analysts been saying for several months now about the North American transportation market: It’s ripe for consolidation.

The US showed a surprising amount of strength in both deal volume and values in the second quarter, even when removing the impact of the first quarter $6.9 billion UPS/TNT announcement, the PwC report, Intersections, states.  Despite concerns about the durability of the economic expansion in the US, the overall market for transportation and logistics M&A remains resilient. Although a return to the M&A peaks experienced prior to the recession are not in the forecast, a strong second half for deals in the transportation and logistics sector is expected.

Other US research shows that 30% of motor carriers earning less than $25M annually are interested in selling over the next 18 months.

It’s no different this side of the border. BMO Capital Markets’ M&A update on the first six months of 2012 reports “robust” transportation and logistics M&A activity with 50 transportation M&A transactions, representing an increase of 19% over the first half of 2011.

Larger companies are going for multiples of 4x to 7x EBITDA while smaller operators are commanding sale prices of 3x to 5x EBITDA. And non-asset based companies tend to be sold for higher multiples than asset-based, according to Jay Lefton, from Borden Ladner Gervais Lefton, who spoke recently the annual Transcore users conference.

What’s driving the robust growth in M&A activity?

Demographics are playing a major role, with the older contingent of the Baby Boomer generation contemplating retirement prospects or at least lifestyle changes. There are many Canadian trucking fleet owners over age 55 with an exit timetable.

They want to rebuild their companies back to their pre-recession stature but they’re not eager to go back to “60-hour plus weeks and cell phones going off constantly,” according to M&A experts Doug Davis and Doug Nix, both of whom participated with me at a recent Driving for Profit session on the subject. There also appears to be the money necessary to fund such purchases.  

“If I was just looking at financial statements I wouldn’t know there was a downturn in the economy,” Nix told me. “The moving parts are starting to fall into place. Lenders see that they can back some of these industries, especially in Canada.”

Is consolidation good for the industry? Consider that prior to 2003, at the start of the great economic expansion of the past decade, there were slightly fewer than 9,000 for-hire motor carriers chasing a steadily increasing amount of freight in Canada.

Prior to 2009, at the start of the worst recession since the 1930s, there were close to 13,000 for-hire carriers now chasing a sharply decreasing volume of freight, which despite improvements over the past year, is not growing as substantially as hoped.

Clearly consolidation is unavoidable. For more information about M&A activity and other industry trends, check out my Inside the Numbers e-newsletter. It’s available in the Knowledge Centres section at www.trucknews.com.


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