Two experts in trucking company acquisitions predicted this week that we are in store for an upswing in industry consolidation in 2012. This was one of the highlights of the Driving for Profit event that was held in Mississauga this past week. Lou Smyrlis, Editorial Director of Canadian Transportation & Logistics interviewed two gentlemen who play significant roles in these types of activities, Doug Nix, Vice Chairman of Corporate Finance Associates and Doug Davis, Independent Director, Pro-Trans Ventures Inc.
In the initial stages of the interview, Lou asked these gentlemen about why we did not see more consolidation during the recent recession. The key takeaway from this discussion was that during this difficult period, trucking companies hunkered down into a “survival mode.” The recession created devaluations of trucking company businesses. Most truckers decided to tough it out until valuations improved. Lenders, who saw trucking as a core industry, chose to support the industry until economic conditions improved.
The two investment advisors now believe that M & A activity will now increase. They base this conclusion on the fact that after a 3 year hiatus, there is a pent-up demand. There is a “ton of cash” waiting to be invested. Balance sheets are healthy again. During the recession, many trucking companies right-sized their businesses. Investors will now see more efficient, stable businesses.
Demographics will also play a part as many baby boomers who are seeking an exit strategy are three years older and their timetable for leaving the industry is now shorter. We now have willing buyers, sellers and bankers. While the two gentlemen do not predict a “feeding frenzy,” they do expect to see a doubling in the volume of trucking company acquisitions as compared to what we saw the last three years.
Lou then asked these advisors about the types of deals we are likely to see. They expressed the view that there will likely be more “bolt-ons” where companies seek to expand a core business. These types of deals allow companies to “improve overheads, bring margins into line” and “reduce dependence: on certain “key customers.” When asked a question about whether we can expect to see a blockbuster deal like the Yellow-Roadway merger in the U.S., Doug Nix made the observation that the money would be there if the right plans with the right people are put in place. However he opined that he does not think Canadians have the “chutzpah” to make a deal of this nature.
With respect to the issue of Canadian companies buying U.S. based firms, or vice versa, these gentlemen reminded the audience about the poor track record Canadian companies have in buying and running successful businesses in the United States. With Canada being one tenth the size of the United States, Canadian companies are of less interest to American truckers. While Celadon has expressed an interest in acquiring Canadian truckers, their focus appears to be on “distressed” companies that are available at essentially no cost.
One of the interesting comments made by these industry advisors was the need to “grow or die.” Truckers that try to maintain their existing footprint are in danger of “overhead creep” and “complacency.” They suggested that it is time to sell if you are happy with the size of your current company and there is no longer a desire to grow the business. Over time, this could lead to stagnation or possibly risk of diminishing profits. For companies that are having success in building their businesses, the question then becomes one of whether its management team will have the competence to lead the larger organization. Will the star salesmen be able take on the role of sales coach, mentor and leader? In next week’s blog, I will share the views expressed by these individuals on how to buy and sell a trucking company, what earnings multiple is used and how to ensure a successful acquisition.
Note: The new Freight Management Best Practices group is up and running on LinkedIn. The group now has over 120 members and there are some very interesting discussions taking place. Please feel free to join the group.