Trucking M&A Expert Doesn’t Expect Slowdown

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The market for mergers and acquisitions in trucking is poised to stay robust, but could undergo some changes, an expert said during a recent industry event.

“Based on our activity, we don’t see things slowing down at all,” said Spencer Tenney, CEO at M&A advisory firm Tenney Group, during a Jan. 26 discussion focused on deal activity and the freight market hosted by the Truckload Carriers Association. “What we do see is some evolving as it relates to value and structure.”

The trucking industry has seen robust acquisition activity throughout the coronavirus pandemic. High freight demand, low interest rates, capacity shortages and incentives to diversify created an ideal environment for both buyers and sellers. But some of those motivating trends have reversed that course, notably rising interest rates.



“I think the general position from banks right now is going to be conservative,” Tenney said. “I think buyers will still be pretty aggressive, so they’ll just have to package deals in different ways.”

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Spencer Tenney

Tenney 

He added, “Don’t assume that there’s going to be a huge dive in value. I think what we’re going to see is just an evolution of structure, and how deals get done. But there’s going to be a ton of deals that get done.”

Tenney believes business shifts caused by the pandemic changed how carriers view growth, and the role acquisitions can play. For example, diversifying to better weather turbulent markets.

“I think what we’re going to see is creative buyers and sellers just working around that,” he said, “using assumption of fleet debt — which has better, more favorable terms in the current market — and using that as an instrument to work around and mitigate costs that don’t add value to buyers or sellers. That’ll be a huge deal that will play a huge role in small-and medium-sized acquisitions. For larger deals, I think, there’s going to be a lower ceiling.”

In fact, Tenney sees a shift away from large fleets pursuing deals. While there was activity among the big companies over the past few years, he sees those carriers getting more selective. “You’re just not going to see as many of them,” Tenney said. “I think there’s going to be interest, but the built-in constraints may limit what can happen there.”

These carriers may instead turn to complementary businesses. “I think there’s going to be tremendous interest to go after elite platform brokerages and other types of things that expand capabilities,” he said.

Plus, some of this year’s activity will be spillover deals held up from last year, either because of pent-up demand or fleets that worked to wring business out of the robust freight market.

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“I think we’ll see buyers just narrow their focus to deals that they’re most confident fit their strategic plans,” Davis Looney, business development director at Tenney Group, said. “That could mean actually diversifying into new verticals or commodities, or in markets just to hedge their exposure to any one particular industry in advance of a questionable, larger economic environment going forward.”

Looney added that carriers may also be looking to grow in areas where they’re most comfortable. That could include building density and shrinking side acquisitions to ensure less integration risk.

“I think there’s going to be a significant amount of deals done, but just probably more small deals done,” he said. “There’s going to be blockbuster deals done and we’re going to see some big headlines and some big movement at some of these larger platform type businesses. But probably a lesser amount this year.”

Knight-Swift Transportation Holdings Inc. is one carrier that remains focused on acquisitions.

“Since the 2017 [Knight-Swift] merger, we’ve invested $1.6 billion in acquisitions,” Knight-Swift CEO David Jackson said during the company’s Jan. 26 earnings conference call. “Making acquisitions remains a high priority, and our strong cash flow generation and leverage ratio of less than 1.0 provides us with ample capacity for M&A opportunities. Our balance sheet is strong and we’re well-positioned to invest in organic growth, pursue acquisitions, purchase more shares, increase dividends and pay down debt.”

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