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The fare market is not what it used to be. After months of excess capacity and a weak outlook for the peak season, experts say the environment is ripe for more mergers and acquisitions.
Over the past 2 ½ years, the trucking industry has expanded rapidly to cash in on the buying frenzy sparked by the pandemic, which has seen shippers pay historically high interest rates to bring goods to market. Now smaller carriers — especially those that tried to cash in on record interest rates and took on debt to buy equipment — are struggling to make ends meet in a weak economy, industry experts say.
“Now you have a lot of small and medium-sized companies whose profitability has been reduced in monetary terms,” said Peterson Hawkins with the Lilium Group, a private equity firm.
As businesses in this situation look for a way out, cash-strapped larger carriers see a buying opportunity.
“It’s a perfect storm for a lot of acquisitions,” Hawkins said.
More offers are on the horizon
The fourth quarter of 2021 was the peak of a seller’s market, according to Billy Hart, managing partner at M&A consultancy Bluejay Advisors.
In the years that followed, companies and owners overcame economic uncertainty, supply chain disruptions and rising interest rates, changing the dynamics of acquisitions. Now, companies that have weathered the pandemic and related economic events are poised to exit, Hart said.
Beyond the economy, generational trends are also influencing the buyout market. “Baby boomers are looking to leave their companies,” Hart said, noting that many carriers don’t have a succession plan. “They want to make as much money as they can and be done with it.”
Blujay Advisors analysis shows that M&A volume will increase slowly in the coming quarters with the second half of 2024 returning to a more robust deal market.
This assessment is shared by the accounting and consulting firm KPMG.
Scott Heerya KPMG partner who specializes in transportation and M&A manufacturing, said more trucking executives have been hiring consultants for sales opportunities in the past year, and momentum is building for a busy 2024.
“We can see that from the sellers starting to get ready and go to market … they’re talking to bankers, so I think we’re close to being in line,” Heery said. “I think there will be an uptick in ’24 and it will accelerate the consolidation within it again [trucking] sector.”
Willing to wait for the right acquisition
Despite low interest rates and a soft economy, some of the nation’s largest carriers have expressed a desire to expand.
Schneider National and Hub Group executives both said during recent earnings calls that they want to continue their respective growth strategies through acquisitions.
Hub Group Chairman and CEO Phillip Yeager said in July that his company maintains “a strong pipeline of acquisition opportunities” that could strengthen the logistics sector without assets. And while Schneider National recently purchased M&M Transport and plans no more deals this year, CEO Mark Rourke said in August that future purchases of specialty companies with contracts with 25 to 30 years of history and no solid succession plan are on the table.
There are many private companies that fit that description with owners who will eventually want to exit, Jonathan Phares, an assistant professor of supply chain management at Iowa State University, wrote in an email to Trucking Dive.
“Carriers with valuable books of business or strong asset bases are more likely to be acquired than smaller carriers with fewer relationships with shippers and truckers,” Phares said.