Transportation and logistics M&A activity continues to make strides

Jeff Berman, Senior Editor -- Logistics Management, 7/17/2007

ATLANTA—Coming off of a busy 2006 in which there were approximately $7 billion in mergers and acquisition activity in the transportation and logistics market, activity in this space through the first seven months of this year appears to be maintaining that momentum, according to Ben Gordon, managing director of BG Strategic Advisors

Speaking at the eyefortransport 3PL Summit/Outsourcing Logistics event in Atlanta last month, Gordon likened the brisk rate of deal making in this sector to a form of “winner take all economics,” in which there is a rapid ascension of capital being deployed by private equity and venture capital firms into transportation and logistics companies.

The state of m&a activity in 2007, said Gordon, can best be described as big risks and big rewards, adding that the market is seeing a smaller amount of firms acting as the “big winners” when it comes to these significant transportation and logistics investments.

“There is an advent of capital being poured into the transportation and logistics markets,” said Gordon. And this rush of capital is not mode-specific, as Gordon pointed out that there is demand for various types of players, including trucking companies such as US Xpress Enterprises, which recently received a buyout offer from Mountain Lake Acquisition Co.

And that fact that a trucking company is in demand, noted Gordon, is indicative of the type of money that is now available to be deployed into the transportation and logistics sector.

Another driver for m&a activity is steady push of what Gordon described as "service convergence," which is seeing continued capital investments.  One example of this convergence was the Jacobson Companies May 2006 acquisition of Wilpak, which combined package services and transportation services. Another example is the PWC Logistics acquiring Geologistics in September 2005 to blend warehousing with freight forwarding.

The third area in which industry consolidation is chugging along, according to Gordon, is its geographic emergence, as is the case with North America-based companies looking to expand into Asia. Schneider National’s acquisition of American Overseas—a trucking company buying a freight forwarder—is an example of this. Gordon said this decision by Schneider stemmed from a shift requiring carriers to shift their decision-making processes to the point of origin.

Seems like old (technology) times
Much of what is occurring with transportation and logistics industry consolidation, noted Gordon, is akin to the supply chain technology boom, which began in 1999-2000, when technology vendors began consolidating and continues today. Some of the more recent deals along these lines include Oracle’s acquisition of G-Log, JDA’s purchase of Manugistics, and several acquisitions made by RedPrairie, among others.

What happened on the technology side lines up with the spate of transportation and logistics “mega-deals” that have occurred, with CEVA Group Plc’s (formerly TNT Logistics) May acquisition of EGL, Deutsche Bahn’s purchase of Bax Global, UPS buying Overnite, and FedEx taking the reins at Watkins, among others.

“There is a flurry of [acquisition] activity in a market where a smaller number of players [in a crowed field] are emerging as winners,” said Gordon.

While there are plenty of rewards that come along with industry consolidation, Gordon also pointed out they are not without its risks. Chief among them is the issue of supply chain security, said Gordon, with Congress continuing its call for 100 percent cargo inspection, which, if passed one day, could have a major ripple-like effect on supply chain operations and impact the economy. Another risk cited by Gordon is the ongoing driver shortage and its effect on transportation costs, coupled with inflation surges.

“There is definitely a lot of risk and uncertainty in the marketplace,” said Gordon.

What makes a big winner?
In a sector that is seeing more deals and more investment dollars, Gordon said that companies willing to make bold bets are the ones that are most likely to succeed in this m&a market.

From a size standpoint, he said there are 15 companies in the transportation and logistics sector that are valued at more than $1 billion, according to Gordon. And over time these are the ones that are best able to meet shippers’ needs as they look to reduce the number of suppliers they use.

Companies looking to get to that $1 billion-plus mark and accelerate their growth, said Gordon, need to take a look at—and potentially take advantage of the strong m&a market, as well as explore partnership and acquisition opportunities to take the next step.