Logistics news: Many factors at play in industry M&A space, according to Ben Gordon
Jeff Berman, Group News Editor -- Logistics Management, 7/11/2008
ATLANTA—Even though the value of the American dollar has declined and the economy is in rough shape, the mergers and acquisitions market for transportation and logistics companies is in decent condition, according to Ben Gordon, managing director of BG Strategic Advisors.
In a presentation at the recently-held eyefortransport 3PL Summit/Outsourcing Logistics conference in Atlanta, Gordon cited various themes that are driving industry change today.
The first theme Gordon cited was fuel shocks, which he said are eroding profits and changing the dynamics of the transportation industry.
“We are living in what will probably be a permanent age of higher fuel prices,” said Gordon. “That is bad news for 3PLs on the asset-based side, but things are better on the non asset-based and brokerage side..although it is bad news for the sector as a whole.”
But despite the ongoing spike in fuel prices, Gordon explained there is some good news. In this era of higher fuel prices, the long supply chains of the last decade—with manufacturing being outsourced to Asia and then being transported back into North America—is being replaced by shorter supply chains, where companies are increasingly looking at doing their contract manufacturing, packing, and other services closer to home.
This concept has the potential to result in more manufacturing coming back to North America, which may bring about more opportunities for domestic logistics services and opportunities for entities like regional warehouse players and companies looking to source and leverage manufacturing operations in Mexico, noted Gordon.
The declining dollar: In the last year and a half alone, the value of the dollar has dropped more than 30 percent when compared to the Euro, noted Gordon. This decline has had a decidedly negative effect on the importing freight forwarding and logistics industry providers, and it will likely help to drive export growth in the future.
Card Check: While not a household term, card check is something that people need to keep an eye on, according to Gordon.
“Card check basically changes the rules for unionization,” said Gordon. “Historically, if I were to unionize, I could do that provided that I had a secret ballot. But under card check there could be a public list and I could go from employee to employee and try to persuade them to sign it with their votes being made public.”
Gordon said if card check—which is a key component of a Congressional bill entitled The Employee Free Choice Act—could be a “very scary change” for all non-unionized businesses, because it would legalize the balloting of union decisions to be in a public election. And if a majority of employees were to vote for union representation via Card Check, the National Labor Relations Board (NLRB) would be required to recognize the union. In the Card Check process, all the union needs to do is gather a list of employees declaring their support, and if the list reaches a majority, the company can be forced to go union.
Credit Crunch: With 2007 being known as the year that the debt markets melted down. And when that happened, the ability of private equity concerns to pay for acquisitions using leverage was severely impacted, too, said Gordon.
Private equity-backed transactions from 2001 to 2007 skyrocketed from less than $50 billion to about $800 billion, according to Gordon. But he said that 2008 will clearly fall short of that pace, with year to date totals around $100 billion.
The final theme Gordon discussed was the quickened pace of consolidation.
“If you looked at the top 50 players in logistics today, you would find that in 2008 they control about 50 percent of the total market,” said Gordon. “It is a pretty fragmented market, but it is not as fragmented as it was ten years ago.”
Compared to 1998, Gordon said the top 50 logistics players controlled only about 20 percent of the market. What has happened since then is that the larger players have acquired more market share and have subsequently benefited through economies of scale and better technology platforms, and customers wanting to use fewer suppliers, among other factors.
And with the top 50 logistics players now controlling 50 percent of the logistics market today, Gordon said he expects that figure to bump up to 80 percent in the future.
“This does not mean that that the smaller players will go away; it means that the market share available for smaller companies will decrease.”
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