The Transportation & Logistics market is very active for Mergers and Acquisitions. American trucking companies saw a surge of M&A activity in 2017. Many big names consolidated, including the Knight-Swift merger announced in April. This created a giant conglomerate boasting 23,000 trucks and $5 billion in annual revenue. So what’s in store for Transportation & Logistics in 2018?
Economies of scale are virtually impossible in trucking at $250 million and above. Instead, it’s about synergies of size—balancing flows, dealing with problems, running in more lanes. New technology allows companies to run much larger operations with the same span of control. Yet only well-run companies can efficiently operate at large scales. And as always, market conditions matter.
Here’s what we predict—and what we’re already seeing—for 2018:
- A surge of M&A activity. There’s plenty of capital out there, but who gets it depends on a number of factors. Buyers want to ensure they can improve upon their investments. Their eyes are on their next 12-month multiple. Many buyers still remember the terrible market of 2016, and are going to be more cautious about what they buy.
- A slow market for big acquisitions, and a mixed market for smaller firms. Investors who started out giddy over the “Trump economy” may have undermined the market. They’ve pushed stocks so high that big acquisitions may now be too pricey. Valuations are high, and economies of scale are low. This means that buyers may now begin to balk at premium prices for smaller carriers.
- Higher market premiums. When things look better, buyers have to pay more. Equities have increased by double digit percentages. So while there may be more bidders and higher cash flow, those bidders must be willing to pay more.
- A change in the market’s appetite for debt. Historically, there wasn’t much debt in this industry. As carriers grow through mergers, there may be greater willingness to take on more debt. We don’t yet know how the market will react to this.
- A strong labor market. This corresponds to greater difficulty retaining drivers. Carriers may have to pay more, and offer more benefits. This translates into a greater appetite for carriers with highly qualified drivers. A trucking firm with a low turnover rate and a committed team suddenly becomes much more appealing to an acquirer.
2016 saw a slow down in production of new Class 8 trucks, with similarly weak production in 2017. But by the end of 2017, production picked up, with several months of 30% year-over-year growth of new truck deliveries. While carriers may be cautious about expanding their capacity, preliminary figures suggest high confidence in 2018. This is rooted in highly favorable market conditions.
The trucking industry has already gone through two boom-and-bust cycles since 2009’s Great Recession. 2010 saw tepid growth, followed by rapid growth in 2011 and a plateau in 2012. The second cycle began with a small contraction in 2013, followed by rapid growth in 2014-2015, and a significant contraction in 2016. This suggests we can reasonably expect one more year of growth in 2018, followed by a contraction. It’s important to plan M&A transactions with this timetable in mind.
About The Hatteras Group
The Hatteras Group is a collaborative team of professional intermediaries and advisors, leading business owners and entrepreneurs as they navigate the complex and often emotional process of selling or buying a business in the Transportation & Logistics industry. We represent owners looking to sell their businesses, lead proprietary acquisition searches, source equity and debt and provide business valuation services, generally working with companies whose annual revenues are $5MM to $100MM.
Transportation & Logistics Practice Group
Contact Bill McBane or Rod Randolph in our Trucking & Logistics Practice Group to schedule a 30 minute call to learn how we can help you explore the M&A market or sell your business.
