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April 13, 2015 4:00 AM, EDT
Timeline: Major Mergers and Acquisitions From 2010-2015

By Daniel P. Bearth, Senior Features Writer

This story appears in the April 13 print edition of Transport Topics.

Over the past 10 years, $36.7 billion has been spent to acquire logistics companies in North America, according to data from Armstrong and Associates. And industry and investment experts believe that the buying is just getting started.

“Investors are starting to realize the importance of transportation and logistics to the overall economy,” said Seth Wilson, managing director and co-founder of Headhaul Capital Partners in New York. “When I started, it was not a factor.”

Wilson spent 20 years at Jefferies Capital Partners, where he had a hand in making investments in a number of companies, including Arnold Transportation Services, New Century Transportation and R&R Trucking.

For its first-ever acquisition, Headhaul last year bought the international freight-forwarding division of TTS. While terms of that deal were not disclosed, Headhaul currently is raising $150 million to fund additional investments in trucking and logistics markets.

“This is a very large marketplace that is very fragmented,” said Regg Jones, co-founder and managing partner of Greenbriar Equity Group, a firm that has invested exclusively in transportation and logistics for the past 15 years. “As I see it, we’re at the beginning of a multi-decadelong consolidation trend.”

The push for consolidation in the logistics industry is being fueled, in large measure, by the availability of money.

“This is perhaps the strongest financial marketplace we’ve ever experienced,” said Ben Gordon of BG Strategic Advisors in West Palm Beach, Florida. Speaking about the overall deal market across all industries, he said, “Mergers and acquisitions are at record levels, with U.S. 2014 volume reaching $1.6 trillion, a 43% increase over 2013. And initial public offerings raised $96 billion in 293 deals in 2014, the highest since 2000.”

He added, “Within the supply chain sector, the deal and capital markets are booming. Smart companies are taking advantage of this opportunity.”

Acquisitions are a good way for companies to diversify their services and grow revenue by cross-selling services, said Peter Troup, managing director at EVE Partners, a financial advisory firm in Atlanta that focuses on the transportation and logistics industry.

“Shippers want to simplify business by dealing with fewer suppliers,” he said.

Troup believes private equity firms’ success with past investments will keep them active in the acquisition marketplace, and he expects they will rely on knowledge gleaned from earlier deals to inform future negotiations.

In fact, Gordon cites attractive returns investors have realized from previous deals as a key to making deals in the future.

“Greenbriar [Equity Group] just had a very successful exit of their investment in Genco, for instance, when it sold to FedEx for over a billion dollars,” he said. “Warburg [Pincus]’s sale of New Breed to XPO represents another big win.”

Plus, he said, capital markets are wide open. “Banks are willing to finance deals, equity funds are eager to fund acquisitions and the public markets are looking to find new companies,” Gordon said.

Competition is raising valuations of acquisition targets, Troup said, with prices as high as 12 times earnings before interest, taxes, depreciation and amortization, and between seven and eight times EBITDA for smaller companies.

“We are seeing valuations not seen since the 2006 and 2007 timeframe,” he said.

While investors seem willing to pay more for non-asset-based transportation and logistics firms, prices can vary widely, according to Joe Denny, chairman of Chapman Associates, a firm based in Schaumburg, Illinois, that represents buyers and sellers in mergers and acquisitions in transportation, food and beverage, health care, manufacturing and information technology industries.

“Larger companies command higher multiples,” Denny said. “But there’s more involved than just size. You need to look at cash flow, asset values, the number of customers and other things.”

Even geography matters. For example, a company in North Dakota 20 years ago would have had few buyers, Denny said. Now the state is a hotbed of activity due to the growth of oil and gas production in the region.

Based on data collected by Chapman, about 70% of transportation and logistics buyers are looking to acquire traditional asset-based companies, while 30% are looking for asset-light or non-asset-based logistics companies.

Among sellers, however, 83% are asset-based companies and 17% are asset-light or non-asset-based firms, he said.

Daniel Mekler, director of deals strategy at PricewaterhouseCoopers, said that demand for sophisticated logistics services is rising in industries, such as technology, automotive and health care, that are themselves growing at a healthy pace.

“Acquisitions offer a mechanism to add new or shore up existing talent and capabilities, strengthen customer relationships and penetrate new markets,” Mekler said. “Customers tend to rely on specialty providers for mission-critical services and prefer to renew their contracts rather than switch to another provider and risk a supply chain disruption and additional setup costs and learning curves.”

Mekler noted that the third-party logistics market is made up of a large number of relatively small players that focus on specific services or geographic areas.

“This high industry fragmentation translates into multiple attractive acquisition candidates,” he said. “For well-capitalized companies, the opportunity to supplement their capabilities through strategic purchases of specialized industry players is significant.”