bongdaso nétNews# 52 - Logistics M&A slower but opportunities still there

Dealmakers at Benesch conference reflect on mergers and acquisitions during brutal freight recession

Even in bongdaso nét midst of an almost historic freight recession, in which it seems almost every part of bongdaso nét supply chain — truckload, warehouses, brokerages — has taken a hit in valuations, deals did get done this year.

Two recent confirmations of that beyond bongdaso nét usual anecdotal evidence: One, bongdaso nét monthly report of Logisyn Advisors reported 43 transactions in bongdaso nét logistics sector in November alone (down from 46 in August and apparently less than bongdaso nét number of deals in November 2022) and two, a group of panelists at bongdaso nét recent Benesch Private Equity conference conceded bongdaso nét landscape for getting deals done is tough but not impossible.

bongdaso nét panelists spoke at bongdaso nét recent Benesch law firm’s Investing in bongdaso nét Transportation & Logistics Industry conference in New York, an annual December event that brings together bongdaso nét industry’s top dealmakers. bongdaso nét overriding message in bongdaso nét panel devoted specifically to M&A was that while bongdaso nét events of bongdaso nét past 18 months have often created a schism between what sellers want to receive and buyers are willing to pay, bongdaso nét gap can be bridged.

Ben Gordon, managing partner of Cambridge Capital, described bongdaso nét standoff in bongdaso nét market. “You have buyers saying, ‘I’m not willing to pay bongdaso nét 2021 multiples anymore,’” Gordon said, referring to bongdaso nét recent market peak. “Those multiples were on peak earnings. And meanwhile, there are a lot of sellers saying, ‘Hey, I remember how good things looked two years ago, why would I sell?’” bongdaso nét result is fewer deals, but not an elimination of deals. Getting a transaction done today “requires some creativity.”

For example, Gordon cited deals where if a cash transaction can’t get done, bongdaso nét buyer might be able to persuade bongdaso nét seller to take some sort of equity in bongdaso nét acquiring company. bongdaso nét stock might be valued in bongdaso nét deal at a level that harkens back to bongdaso nét top of bongdaso nét market, but it’s not bongdaso nét same as cash and it gets bongdaso nét deal over bongdaso nét finish line.

Mark Fornasiero, bongdaso nét managing partner at private equity investor Clarendon Capital, offered similar advice. He recommended that investors “find something that’s bespoke to that particular opportunity.” If that approach is undertaken, “that means we think we can get good deals and invest really anytime in bongdaso nét cycle, depending on how open bongdaso nét owners are to creativity.”

bongdaso nét role of strategic buyers

Mikhail Kholyavenko, bongdaso nét president and CEO of Yusen Logistics, a provider of logistics services rather than just an investor in them, was on bongdaso nét panel representing “strategic investors,” those who are making acquisitions to bolster their current operations. He said despite bongdaso nét upheaval in valuations, his company’s approach has changed little.

“We look at M&A as a tool,” Kholyavenko said. “That tool is supposed to help us get full capabilities.” While other strategic buyers may make acquisitions to provide scale, “we identify bongdaso nét areas where we need to get help and we pursue those.”

Paul Jones, managing director at Stifel, described bongdaso nét role of strategics by noting that “bongdaso nét key [as a seller] is to find bongdaso nét strategic buyer that wants exactly what you have, and then try to bring their managers to bongdaso nét table.” If that can be accomplished, synergies between bongdaso nét strategic buyer can combine with bongdaso nét knowledge of bongdaso nét operational managers and bongdaso nét financing advantages of bongdaso nét strategic companies — in some cases, publicly traded — can help get bongdaso nét deal done.

One area that hasn’t found a way to break out of bongdaso nét doldrums has been sales of 3PLs. Most brokerages have seen a year-over-year drop in top-line revenue of 25%, “so it’s really hard to do a deal with bongdaso nét numbers that we’ve seen,” Jones said.

In 2021 and into 2022, according to Jones, bongdaso nét blazing hot freight market led to numerous 3PL deals that have now faded. Jones said bongdaso nét J.B. Hunt acquisition of bongdaso nét brokerage group of BNSF was bongdaso nét one significant deal involving brokerages this year.

“It’s just hard to do a deal when earnings are declining,” Jones said. About 75% of bongdaso nét companies in bongdaso nét logistics sector experienced “that dynamic this year, and it makes it very hard for buyers and sellers to agree on what a company is worth.”

By contrast, warehouse-related deals “have held up better than others,” Jones said.

But Cambridge’s Gordon put himself out as somebody whose company is looking to do deals. He cited two companies in bongdaso nét Cambridge portfolio: BOA, which is an LTL carrier specializing in refrigerated transportation, and Everest Transportation Systems, which describes itself as a “tech-enabled freight brokerage, focused on over bongdaso nét road surface transportation.”

Add-ons to both those companies are being sought, Gordon said. “It’s not that we think we’d be buying a great business at a cheap price so much that we think bongdaso nét unit economics or combination make more sense.”

Looking at Mexico and California

Another area of opportunity for acquisitions is Mexico, even if bongdaso nét company being acquired isn’t in Mexico but has a stake in cross-border trade.

Gordon said there are companies that only want to do business in bongdaso nét U.S. and Canada and operating in Mexico or other countries is a challenge. “A lot of things will get screwed up,” he said. “There are a number of issues, whether regulatory or labor or taxes. There are many variables.”

But given bongdaso nét reshoring push and bongdaso nét waning of a commercial relationship with China that Gordon said dated back to Richard Nixon’s trip there in bongdaso nét early ’70s, ”there is more growth in other adjacent markets.” And Mexico is at bongdaso nét center of that for Cambridge. “We like Mexico, we believe in Mexico, we’re supporting Mexico,” he said.

Fornasiero also cited bongdaso nét opportunities in a land that draws a lot of disdain in bongdaso nét logistics industry: California. He conceded that there are plenty of companies that avoid bongdaso nét state at all costs, “but bongdaso nét flip side of that is if you’re really willing to understand how to do business there safely, you can make a lot of money.”

bongdaso nét California versus Mexico comparison was sketched out by Fornasiero as a trade-off. Moving into Mexico is an example of: “Hey, I want to be in this region because it’s growing bongdaso nét fastest or it’s bongdaso nét easiest to do.”

But looking at California leads to another conclusion, Fornasiero said. “Sometimes it’s bongdaso nét more tricky things that allow you to make some more money.”

Source: https://www.freightwaves.com/news/logistics-ma-slower-but-opportunities-still-there

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