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


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

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

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

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

Ben Gordon, managing partner of Cambridge Capital, described the standoff in the market. “You have buyers saying, ‘I’m not willing to pay the 2021 multiples anymore,’” Gordon said, referring to the 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?’” The 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, the buyer might be able to persuade the seller to take some sort of equity in the acquiring company. The stock might be valued in the deal at a level that harkens back to the top of the market, but it’s not the same as cash and it gets the deal over the finish line.

Mark Fornasiero, the 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 the cycle, depending on how open the owners are to creativity.”

The role of strategic buyers

Mikhail Kholyavenko, the president and CEO of Yusen Logistics, a provider of logistics services rather than just an investor in them, was on the panel representing “strategic investors,” those who are making acquisitions to bolster their current operations. He said despite the 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 the areas where we need to get help and we pursue those.”

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

One area that hasn’t found a way to break out of the 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 the numbers that we’ve seen,” Jones said.

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

“It’s just hard to do a deal when earnings are declining,” Jones said. About 75% of the companies in the 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 the 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 the 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 the unit economics or combination make more sense.” 

Looking at Mexico and California

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

Fornasiero also cited the opportunities in a land that draws a lot of disdain in the logistics industry: California. He conceded that there are plenty of companies that avoid the state at all costs, “but the 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.”

The 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 the fastest or it’s the easiest to do.”

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


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