ATLANTA—According to Ben Gordon, managing director of BG Strategic Advisors, merger and acquisition activity in the transportation and logistics sector through the first seven months of 2007 appears to be maintaining the momentum that began back in 2006—a year that saw approximately $7 billion in M&A deals completed.

Speaking at the eyefortransport 3PL Summit/Outsourcing Logistics event in Atlanta recently, Gordon likened the brisk rate of deal making this year to a form of “winner take all economics.” In other words, more and more capital is being deployed by a handful of private equity and venture capital firms in a push to create fewer, but more powerful and diverse logistics services organizations.

The state of M&A activity in 2007, said Gordon, is best characterized as “big risk and big reward,” with a small amount of investment firms acting as the “big winners” when it comes to these significant investments.

And while the capital is being poured into the transportation markets, this rush of money is certainly not mode-specific. According to Gordon, there is a 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. The simple fact that a trucking company is in such demand, noted Gordon, is indicative of the type of money that is now available to be deployed into the sector.

Another driver for M&A activity is the steady push of what Gordon described as “service convergence.” One example of this convergence was the Jacobson Companies’ May 2006 acquisition of Wilpak, which combined Wilpak’s package services along with the transportation services prowess of Jacobson. Yet another example is the PWC Logistics acquisition of Geologistics in September 2005, which blended warehousing with freight forwarding.

Yet another driver for industry consolidation, according to Gordon, is geographic expansion, as is the case when North America-based companies look to expand into Asia. Schneider National’s acquisition of American Overseas—a trucking company buying a freight forwarder—is a prime example. Gordon said the decision by Schneider stemmed from the shift that now requires carriers to move their business decision-making processes to the point of origin.

According to Gordon, much of what is occurring in logistics consolidation today is similar to when supply chain technology vendors began consolidating back in 1999—a trend that 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, said Gordon, lines up with the wave of transportation and logistics “mega-deals” that have occurred. A few examples include CEVA Group’s May acquisition of EGL; Deutsche Bahn’s purchase of Bax Global; the UPS purchase of Overnite; as well as FedEx taking the reins at Watkins.

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

While there are plenty of rewards that come along with industry consolidation, Gordon also pointed out that consolation is not without its risks. Chief among them is the issue of supply chain security, said Gordon. Another risk is the ongoing driver shortage and its effect on transportation costs, coupled with inflation surges.

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

From a size standpoint, he added that there are 15 companies in the transportation and logistics sector that are valued at more than $1 billion. Over time, these are the players that will be best suited to meet shippers’ needs as they look to reduce the number of suppliers they use.

For companies looking to reach that $1 billion-plus mark and accelerate their growth, Gordon said that those players will need to take advantage of the M&A market and explore partnership and acquisition opportunities in order to enter that elite group of global service providers.