Transportation Software Sector Sees M&A Rise
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Technology-focused companies supporting the trucking and logistics sector have experienced a rise in merger and acquisition activity.
Freight transport is supported by numerous technologies from fleet management, telematics, transportation management, digital freight matching and warehouse management. Providers of these services are numerous and fragmented, much like the companies they cater to. Also, as with their customers, a lot of consolidation is happening.
“We’ve seen M&A follow that trend that we’ve seen in the broader transportation sector,” Jonathan Britva, a principal at investment bank Republic Partners, told Transport Topics. “Companies [are] buying other technology providers to fill gaps in their service segments to be able to become more of a one-stop solution for companies in this space, be able to provide multiple technology products to serve multiple modes.”
Tenney Group CEO Spencer Tenney noted transportation software companies that are part of the digital transformation have to do their best to address significant need. They need revenue, expanded capabilities and talent to be more compelling to customers given how competitive the space is.
“Those three things I see as some themes that are driving some of these more technology and software type M&A trends,” Tenney said. “Every day, it seems like there’s a new technology so there has to be something to differentiate. And I think people that want to win the future have to have volume, and they have to be nimble through their sales force, they have to provide a variety of different offerings within their portfolio, and they have to be leading with the talent.”
Capstone Partners released a report June 15 that found merger and acquisition activity in the automotive technology and transportation software sector set a record in 2021. The May 2022 Automotive Technology (AutoTech) & Transportation Software Market Update documented 512 transactions announced or completed in the past year. That compared with the annual average of 350 deals between 2018 and 2020.
“M&A activity remained quite strong in the first quarter of 2022,” Capstone Managing Director David Michaels said in a statement, “although valuation multiples appear to be contracting slightly from their peaks, which is consistent with the broader correction taking place in the public markets.”
The report found transportation management software saw the second most amount of deals over the last year at 115. It was only beaten out by ride sharing and booking apps. Telematics saw 46 deals, supply chain software had 39 deals and warehouse management software saw 25 deals.
“Technology companies servicing the transportation logistics segment look at acquisitions very similarly to actual transportation providers,” Republic Partners’ Britva said. “Do I have a gap in my service offering that I need to fill that could help me sell more services to my existing customers or add new customers? And so, I think those companies look at an acquisition just like a trucking company would or a 3PL would.”
Armstrong & Associates President Evan Armstrong noted most of the activity in third-party logistics is coming from private equity firms. There have always been 3PLs buying other companies in their own space. They don’t tend to pursue straight technology-focused businesses, but it does happen.
“A lot of it gets around to what do investment companies focus on,” Armstrong said. “And a lot of them focus on technology, and where there is that technology focus there tends to be a lot of interest in investing in different apps. They view digital freight brokers like Convoy differently than they view C.H. Robinson.”
Tenney noted that companies that expect to be competitive through revenue, expanded capabilities and talent likely view acquisitions as one of the best approaches. But it also is about finding the right businesses to acquire, such as those with complementary processes and services.
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“So, if you’re acquiring complementary type software technology, it’s just going to enhance your capabilities as a team to be more efficient,” Tenney said. “Then the cross-selling elements. If you’ve got some certain things, customer bases that are complementary between the companies, I think that’s another thing that is driving some of these transactions.”
Tenney also pointed out that the decision of what software to use has to be obvious for end users. He noted these technologies become more compelling the more that they consolidate. He anticipates more M&A activity going into the future given these trends.
“I think that it’s very difficult to do unless you get the volume of customers and the capital to go make it happen,” Tenney said. “That is where you’re combining talent, capabilities and all these things together. I think it provides a much better formula for these technology companies to win the future. If they’re trying to go it alone, it’s just very difficult because the technology is evolving so fast.”
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