More Truck Mergers Seen as Carriers Seek Bargains

This story appears in the June 1 print edition of Transport Topics.

A wave of transportation mergers and acquisitions may be on the horizon, as the recession weeds out distressed companies and carriers shop for bargains to help them secure more freight, several industry watchers said.

“You will see a significant increase in deals closing in the next two quarters,” said analyst Andy Ahern, head of Ahern & Associates Ltd. in Phoenix. “The thought process in this industry is: ‘I need to get clients, and I can’t develop them myself.’ ”

Other analysts also said they expect a ramp-up in trucking consolidations but that it could take longer than two quarters.

“There will be deals in 2009,” said Jason Bass, managing director and co-head of the transportation and logistics group at BB&T Capital Markets in Richmond, Va.

However, “they’re going to be more in the distressed or challenged category,” he said. “We’re going to see some orderly liquidation. We’re going to see some distressed M and A.”

A truly “competitive” M and A environment was likely not in the offing, Bass said, “until sometime next year.”

“There is an increased interest in buying companies,” said Lana Batts, principal of consulting firm Batts & Associates, Arlington, Va.

She said that all but the most distressed sellers “are probably going to hold on until 2010 or 2011,” in hopes of securing a higher sale price than buyers may be willing to pay in the recession.

However, at least one firm has signaled its intention to shop for bargain-priced businesses.

“We’re going to pursue other businesses,” Robert Davidson, CEO of Arkansas Best Corp., said last month at the Wolfe Research Global Transportation Conference in New York.

Concerns about scarce freight were underscored last week by American Trucking Associations’ latest tonnage report, which showed both monthly and year-over-year declines. At the same time, another report revealed that the U.S. Class 8 truck fleet actually grew slightly in the first quarter of 2009.

This continuing imbalance of supply and demand prompted one normally acquisitive investment firm to put off prospects for acquisitions until 2010.

“I don’t think there will be real buying or selling opportunities in the next six to 12 months,” said John Anders, managing director of private equity firm Fenway Partners, based in New York. “Supply and demand balance is still out of whack.”

Fenway owns a number of transportation firms, including Panther Expedited Services and RoadLink USA.

Though Arkansas Best’s Davidson declined to provide a timetable for acquisitions, he did say, “I’m happy to have $200 million in cash around. We’re going to balance off having that safety net against what is the best buying opportunity of my lifetime.”

Arkansas Best’s director of investor relations, David Humphrey, told Transport Topics on May 26 that the company “has been engaged in a formal strategic analysis process and we have now concluded our work on that.”

Humphrey said that target companies include those “in an industry that is adjacent to trucking [such as] transportation, distribution and logistics.”

Arkansas Best, Fort Smith, Ark., is the parent company of less-than-truckload carrier ABF Freight System. The carrier ranks No. 15 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.

So far in the second quarter, only a few transportation industry mergers and acquisitions have been announced.

Most recently, auto transporter Active Transport Co., Joplin, Mo., purchased a majority stake in fellow car hauler Jack Cooper Transport Co., Kansas City (click here for related story).

In late May, DLJ Express, Las Vegas, was sold to private equity firm Acadia Capital Group. DLJ specializes in the transportation of empty ocean containers.

Despite what BB&T’s Bass called an M and A “freeze” in the first quarter, some transportation businesses did change hands in that period.

In March, Greatwide Logistics Services, as part of its bankruptcy proceeding, auctioned itself off to its senior creditors. Greatwide had been part of Fenway Partners.

In February, logistics firm Express-1 Expedited bought up certain assets of First Class Expediting Services, a Rochester Hills, Mich., 3PL that uses an owner-operator network to move expedited freight.

Deals between asset-based motor carriers were rarer. Calyx Transportation Group Inc., Concord, Ontario, was one of the few companies to complete such a transaction in the first quarter.