Transportation M&A Update: Navigating Challenges and Driving Success

The transportation and logistics sector has not been immune to this year’s economic headwinds. While deals are still getting done, deal dynamics, trends, and expectations have shifted. A recent panel discussion brought together transportation and logistics industry veterans, including Spencer Tenney, CEO of The Tenney Group; Dan Cook, principal and practice leader at TrueNorth Companies; Michael Fennerty, director in Katz, Sapper & Miller’s Transaction Advisory Services Group; and Heidi Hornung-Scherr, president of Scudder Law Firm, to discuss their perspective on the market. Their conversation revolved around the intricate dynamics of transportation and logistics mergers and acquisitions (M&A) and how they’ve been affected by various factors, including the volatile freight market, changing interest rates, and the broader economic conditions. They also covered the strategies that buyers and sellers are using to navigate this challenging environment and to ensure successful deals.

Changing Valuation Landscape

Valuations have declined over the first half of 2023 from the higher valuations of 2022. As buyers look at the historical performance over the trailing 12 months (TTM), some of those better performing months are starting to fall off the lookback period. Buyers are taking a more comprehensive view of historical performance and are looking back at trends over the prior years in conjunction with forecasted projections to arrive at the valuation.

Structured Deals and Risk Mitigation

With ongoing economic pressures, buyers and sellers are finding creative ways to structure deals to bridge the gap in valuation expectations. Earnouts, deferred payments, seller notes, and equity rollovers are becoming more common. This approach helps to align interests and ensures that both parties are sharing in the potential upside.

Strategic Buyers Versus Private Equity

While private equity firms have historically been significant players in transportation and logistics M&A, the current market conditions have begun to slightly favor strategic buyers, who may have cash on the balance sheet or financing arrangements in place. Strategics, and especially those that are industry-focused, have an understanding of the freight market that allows them to assess shipper needs and where they might align with carriers. They also have a longer investment period than private equity, allowing them to ride out the economic uncertainty.

Enhanced Diligence and Specialized Services

Buyers are now more focused than ever on comprehensive due diligence. Specialists are being brought in to examine various aspects of the target company, whether that includes finances, tax, legal, or insurance issues. When the freight market is soft, there is zero margin for error in deals, so transportation-specific diligence like freight due diligence, which evaluates profitability, lanes, and network fit, can also help identify areas of opportunity and potential for future growth. Cyber or IT diligence is also becoming more prominent now than in previous years as is reps and warranty insurance. The increased level of diligence can help manage risks, ensure the accuracy of financial projections, and streamline negotiations.

Future Outlook

Despite the challenges, there is optimism for M&A in the transportation and logistics industry, with anticipation of a steady deal flow in the second half of 2023 and into early 2024. It is anticipated that there could be an increased volume of sellers who have been waiting to exit, creating a strong supply of companies available for purchase.

Watch the full panel discussion below for more on the state of transportation M&A. If you need help preparing for or navigating your transportation transaction, complete this form.