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The trucking industry has experienced a robust acquisitions market over the past year that shows no signs of stopping.
An abundance of buyouts is occurring for many reasons tied to specific obstacles in the industry in contrast to an overall good economy. This makes the environment ripe for smaller carriers to sell.
“Definitely still seeing an active marketplace for transactions,” Jonathan Britva, a principal at investment bank Republic Partners, told Transport Topics. “As it relates to intermodal and trucking, various new regulations, higher insurance costs and required investments in ELDs and other technology is creating an environment where companies are finding it tougher to operate and do so profitably.”
Mark-It Express Logistics has been working with Britva to help with its acquisition plans. The Chicago-based intermodal trucking and freight brokerage company recently acquired Spirit Trucking Co. as a first step in that effort.
“This is leading to more of an appetite for companies to consider selling their business,” Britva said. “Especially while the broader economy is still in decent shape.”
Lee A. Clair, a managing partner at Transportation and Logistics Advisors, notes that this is a trend that occurs every so often when the market puts extra pressure on smaller carriers.
“In trucking acquisitions, what’s been going on for a long time is small companies are going out of business, and they either go bankrupt or they sell out and get folded into something bigger,” Clair told TT. “That ebb and flow is based on what’s going on in the market and how much pressure is on the small carriers.”
The rise in acquisitions isn’t just happening on the freight side of trucking; logistics companies also are impacted. Fusion Transport CEO Frank Matarazzo said he is seeing it more so in the greater logistics industry beyond just the trucking segments.
“I’ve seen a pretty large uptick in the number of both strategic players and private equity groups that are interested in some form of acquisition or rollup in the transportation and logistics spaces across the board,” Matarazzo told TT. “I don’t see it specifically just in trucking or warehousing.”
The smaller freight companies are in less of a position to weather the pressures in the industry. The generally good economy, in contrast, makes it a prime time for companies that are in a position to buy to do so.
“2018 was an extremely strong year for the trucking industry, and so there was money for everybody,” Clair said. “The amount of small companies under pressure and having to sell out was down. 2019 went back the other way. The market got soft and companies that were financially on the bubble, it ends up being financially advisable to sell out.”
The smaller freight companies are having to contend with the costs associated with new regulations and necessary investments in technology. They also face a likely increase in insurance costs this year.
“Accident frequencies, I haven’t seen recent numbers, are generally not changing to getting better, but the payouts have just been skyrocketing,” Clair said. “That means the insurance rates, I heard, double this year.”
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Matarazzo said companies often are interested in acquiring other businesses because they have a good service or niche market that would be useful to integrate into their business model. He added it’s like finding a puzzle piece that perfectly fits.
“I think there are different causes,” Matarazzo said. “But I would say overall people are starting to realize that the industry is heavily fragmented and is not as easy to roll up as other industries. Because of that, certain niche players in the market will look to identify strategic partners or purchases that can benefit their existing suite of services they offer their customers.”
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Armstrong & Associates President Evan Armstrong is seeing the same thing on the logistics side when it comes to which companies are being bought out. The difference is, he instead saw a slowdown in merger and acquisition activities last year due to new tariffs and a tightening on lending.
“Investments and acquisitions are still occurring for organizations that offer a strategic service offering, solid human capital or a technological synergy to the partnership,” Armstrong told TT. “Much of the recent M&A activity in the third-party logistics industry has been driven by private equity-backed 3PLs and private equity investors.”
Clair believes the rise in acquisitions ultimately is good since it gives small fleet owners a way out besides bankruptcy and puts their business in a position to scale up with another company. He also expects the trend to continue given the likely spike in insurance costs.
“We’re not far enough into the year to know, so I’m giving you my guess,” Clair said. “I would expect bankruptcies and acquisitions to be high this year because the industry is at capacity to overcapacity going into the year. So the market is a little soft.”
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