Truck News


Look outward, now

The challenging operating environment motor carriers have suffered through the last few years combined with the uncertainties of the current recovery make for the perfect opportunity to look outward a...

The challenging operating environment motor carriers have suffered through the last few years combined with the uncertainties of the current recovery make for the perfect opportunity to look outward and assess strategic positioning and determine the best path forward.

Elian Terner, director of investment banking for Scotia Capital, was at our recent Carrier Workshop, conducted in partnership with Dan Goodwill and Associates, to provide his take on the industry’s future direction and what trucking executives must consider to best position their companies for the years ahead. He outlined carriers’ choice of strategic options:


The focus needs to be on diversifying business lines and competing for new business, he said. Many companies are expected to diversify away from the traditional long-haul irregular route truckload business. For-hire activity in recent years has seen a decrease in general freight and an increase in specialized services. General freight used to make up 60% of for-hire carrier revenues back in 2003. By 2007, that was down to 53%. In contrast, the revenue generated by liquid bulk operations grew to 12% from 7% while the share of revenues driven by specialized freight grew from 18% to 20%.

Terner believes carriers will find it challenging to drive significant EBITDA growth as long the capacity overhang remains an issue.

“Capacity utilization will need to improve dramatically for a healthier pricing environment. The pricing required to drive real out-performance will likely take at least a few quarters as older equipment is shut down and underperforming carriers exit,” Terner said.

Carriers have reduced capacity by eliminating old trucks, parking others and under-replacing their fleets. North American Class 8 orders are down 72% from their peak in 2006 and fairly below the replacement rate. Yet the rate of bankruptcies has not been as high as expected and that is stalling both the capacity overhang and any upward movement on rates.


If the lending institutions remain reticent to shut down the underperformers, that means the industry will have to solve the capacity overhang situation on its own. Terner believes a number of attractive opportunities exist to acquire troubled carriers.

“Consolidation will be a key theme for the trucking industry over the next several years…A highly competitive M&A market will be led by large firms focused on growth by acquisition and financial buyers with strong cash positions,” Terner said. “Many will view small trucking operations with solid books of business as increasingly attractive. Pension funds are expected to show interest in stable, cash-producing firms.”

He expects a number of factors to drive growth through consolidation:

• Improved diversification across customers, geographies and end markets;

• Improved asset utilization; and

• Cross-selling opportunities across business lines and regions.

He does not, however, expect the many small, independently owned and family-operated trucking companies, which dominate Canadian trucking, to be engaged in significant consolidation activity. Most do not have the necessary access to the capital and expertise required to engage in a consolidation strategy.


Increased acquisition activity by large consolidators in the industry will act as a catalyst for valuations, Terner believes. The value of the typical trucking company appreciated significantly during the growth years prior to the recession. At its height back in 2006, trucking companies were being valued at multiples of 10.7x EBITDA. During the trough of the recession they plummeted to 4.2x EBITDA and now sit at about 8.3x EBITDA.

Terner cautions that a return to peak valuations could take five to 10 years and require substantial sustained EBITDA growth.

“Trucking firms that held on throughout the decade have missed the opportunity to capitalize on the strong capital markets and investor demand that led to higher enterprise value. A return to peak valuations will be a long process, thus the wait-and-see attitude may not be desirable,” Terner said.

He added there are numerous private equity funds, strategic buyers and high net worth entrepreneurs interested in implementing growth through acquisition.

“That provides an opportunity to realize value now. Firms that act now can realize higher valuations driven by increased availability of acquisition capital and limited trucking firms available for sale,” he advised.

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