Mergers and Acquisitions Market Begins to Accelerate

Lack of Stability and Certainty Held Down Market for Past 12 to 18 Months
Business people shaking hands
High interest rates, low freight volumes and high inflation all decreased the number of mergers and acquisitions over the past year to year and a half. (Tippapatt/Getty Images)

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After a drop in merger and acquisition activity, analysts believe the market has turned a corner. Driven by uncertain economic conditions earlier this year, M&A has now started a rebound, Tenney Group CEO Spencer Tenney said.

“It was a challenging year for getting deals done, but a lot of deals still got completed,” he said. “What we observed in the market is that all the drivers that are influencing why deals are getting done continue to stay consistent.”

Tenney noted that both the buyer and seller side need a stable environment to transact. The first half of the year lacked that, he noted, so it became difficult for sellers to enter the market. As a result, Tenney saw business owners that were waiting on the sidelines. But that has started to change with the higher interest rates and soft freight conditions beginning to stabilize.

“What we observed in the first half of the year is that many business owners who desire to exit the [trucking and logistics] space believe that the market, temporarily, might be punitive to them from a valuation standpoint, largely because of the many interest rate hikes,” Tenney said. “What we’ve seen in the second half of the year so far is that both buyers and sellers are settling into a new normal.”

The investment banking and advisory firm Republic Partners found M&A deal volumes are down 25% to 35% year-over-year. But that has picked up as the sector heads toward the end of the year, with much of that activity coming from strategic buyers. These companies operate in the same industry as their acquisitions, as opposed to a financial buyer.

Jonathan Britva


“I’d say overall, it was a fairly muted M&A market in the transportation and logistics world,” said Jonathan Britva, managing director at Republic Partners. “The environment and the market were not necessarily conducive to transactions for the most part of this year. You still saw some things getting done, and recently we’ve had a couple more announcements, which is good.”

Britva believes the recent deal announcements are due in part to the market being more predictable because of high interest rates and low freight volumes. He has seen more conversations around deals as a result, which he views as a positive sign for 2024.

“I think what we’ve seen recently is a new normal for higher rates,” Britva said. “I think that isn’t changing anytime soon [and] people have accepted that. The slowdown in the rate increases and a little bit more certainty from the Fed has created an environment where people can now say we know the rates are higher; we can bake that in.”

Lincoln International data showed the trucking sector experienced between a 20% and 30% decrease year-over-year in deal activity through the end of the third quarter. But it also showed there has been some momentum that’s been building that is expected to pick up in 2024.

“I think we’re still experiencing a little bit of the hangover from all of the frenzy that we saw in 2021 and part of 2022,” said Gaurang Shastri, managing director at Lincoln International.

Shastri also noted that the main components required in order for high-level M&A activity to occur is stability and certainty. But he added those were the two things that were lacking over the past 12 to 18 months.

Spencer Tenney


“When you look at it over the past year, freight rates, equipment values and interest rates all swung meaningfully in an unfavorable direction for both buyers and sellers,” Tenney said. “From our vantage point, it didn’t affect overall engagement in the effort to get deals done. It just affected how people engaged, and it affected the tools in which they could both value and structure deals.”

Tenney added the factors driving deal activity included benefits to scaling up, increasing expectations from shippers around speed and delivery experience. He also pointed out that there is an aging population of transportation and logistics business owners influencing the desire to sell as well. But he does also see obstacles in the market like inflation.

Lee A. Clair, a managing partner at Transportation and Logistics Advisors, noted that several clients were eager to make deals but couldn’t borrow money under any rates or terms.

Lee Clair


“The credit markets were closed, and the issue was the lenders didn’t know how to price risk,” Clair said. “Interest rates went up more and faster than ever in history, and no one knew what that was going to mean for the companies, and put on top of that high inflation.”

Left Lane Associates President Peter Stefanovich agreed that uncertainty has hampered the deal environment. “So there’s been a lot of sellers going out right now, and there’s a lot of cautious buyers happening right now,” he said. “Because of that, the multiples have actually come down from peak-of-2022 numbers, and the structures of the transactions have changed. So there’s more earnouts, multiples are lower than what they used to be, and people are looking for a lot more security when acquiring businesses currently.”

Clair noted that the government took both expansionary and contradictory actions this year regarding inflation. He noted it’s printing and spending money in a way that drives up inflation while also increasing interest rates to control inflation. He compared it to standing on the gas and brakes at the same time.

“The net effect was, no one knew what was going to happen and how it was going to affect different companies, so the credit markets were closed,” Clair said. “There were virtually no deals at all through most of the year, other than things like strategics doing add-ons who can finance it out of cash flow or things like that. Things started to change around the middle of the third quarter, and the credit market started to open.”

Trucks and other vehicles on highway

Tractor-trailers and other vehicles on a highway. Strategic buyers have still been active in the M&A market. (WendellandCarolyn/Getty Images)

Stefanovich noted there was a lull in deal activity starting in the early spring. But he observed activity picked back up afterward as people gained better foresight on the interest rates and market conditions. That includes being able to more accurately predict seasonal trends.

“Now inflation is slowing down; the Fed is saying, let’s just slow any interest rate hikes,” Stefanovich said. “Now it looks like that stuff will probably hold steady for a little bit, but the interest rates will probably come down in Q1 of 2024, which is what we’re all expecting.”

Britva noted that strategic buyers are typically looking to fill a gap in their businesses. That might be adding service capabilities or expanding their geographic network. He also pointed out that they tend to be more familiar with the industry and can afford a longer outlook, noting that being able to look further ahead helps when the market isn’t conducive to doing a deal.

“I think a lot of strategics, especially as they’re making an add-on or a tuck-in acquisition, they have either the financing in place already or they have some cash on hand,” Britva said. “They had a couple of really good years, and they can make those acquisitions without going to outside financing, and that’s a big element to a strategic buyer’s ability to get deals done.”

Gaurang Shastri


Shastri was unsurprised by the rise of strategic buyers given that they are less reliant upon the credit markets and are better positioned to unlock synergies that could make otherwise unattractive deals look promising.

“We looked at some of the data again through the end of Q3, and I think almost two-thirds of the deals that were done in the sector were done by strategic buyers,” Shastri said. “Even those that were done by private equity, they had a little bit of a strategic element to it, meaning that these were mostly add-on acquisitions versus new platforms being invested in.”

Clair noted that the credit market this year first started opening up to businesses outside the transportation and logistics space. The reasoning given to him was that many of these businesses are focused on a particular industry, which makes them easier to predict, unlike a transportation company, which potentially deals with many industries.

“We’re just now getting to the point where the markets are open for transportation and logistics,” Clair said. “The lenders are more comfortable that they think they have a good line of sight on earnings, although the interest rates are — to their historic standards — very high, and the terms are not always the most favorable. But you can do deals, and deals have started.”


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Clair added that these investments are starting more on smaller deals in which the banks only have to risk small amounts before moving larger. He also noted this is a good market for an aggressive buyer with a good strategy that knows what they’re doing since valuations are down and there is hesitancy from the banks.

“Things are much more stable now than where they were,” Clair said. “Even if they do another interest rate hike, you’re doing a quarter percent off a much higher number, which is a smaller percentage. And you’re not going to have multiples of them coming back to back in a short period of time, or it’s highly unlikely you will.”

The Greenbriar Equity Group has seen similar trends more broadly with its focus being on non-asset transportation and logistics generally. The private equity firm also has notably taken an interest in truck brokerage with investments in Uber Freight and Transplace, which was later acquired by Uber Freight.

John Anderson


“The number of deals getting done is way down, and it will take another year for clarity on the true level of earnings in the marketplace in general, true price levels in general, and the true earnings of specific deals to become apparent to both buyers and sellers so they can negotiate,” said John Anderson, operating partner at Greenbriar. “People are taking their bets and making their guesses for the future, and sellers are deciding how much they’re willing to take.”

Anderson noted that before the pandemic, there were many deals getting done in transportation logistics. He recalled how there was a brief slowdown when the pandemic first hit, as people waited to see what would happen. But the deal environment soon exploded once they figured out the new market conditions.

“For this two-year period, second quarter of 2020 to second quarter of 2022, you had buyers and sellers both seeing markets that were robust in transportation and logistics,” Anderson said. “Therefore, you had lots of deals getting done. Happy sellers and happy buyers. And then, as COVID ended, assumptions that were made about future demand, future ability to generate profits, future supply-demand balances and therefore prices were found to not hold up.”

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Anderson added this shift meant that some of the acquisitions that were made during those years became challenged since the valuations were based on faulty forecasts. He said it made his firm reluctant to figure out what the value and the price would be to buy something at that time.

“You dig into it, and two-thirds of the profit increase came because prices were increased exorbitantly or extraordinarily, and you just say, that can’t go on, the price will come down, and sure enough, prices did come down,” Anderson said. “Everything came down, and in 2023, most transportation and logistics companies’ earnings are down.”