By Sharon Heaton, Founder & CEO and Robert Shaffer, Senior Advisor
An estimated $1.5 trillion in private equity money is looking for deals in 2022, with about 10-12% of that cash seeking buys in Transportation and Logistics (T&L). Strategic and private equity investors are seeking depth and breadth as they build out their T&L portfolios this decade.
It’s an extraordinary opportunity for entrepreneurs who have mastered a niche -- or cornered a geographic market -- to cash out at a time of high valuations.
M&A activity in T&L kicked off with a bang in November when PE giant Blackstone paid a whopping $2.8 billion for 22 logistics companies in Europe and 102 in the U.S., a portfolio formerly owned by Cabot Properties. The deal makes sense at a time when trucking companies, freight brokers and shipping lines are reaping big gains as companies scramble to move their goods. The fact is, the supply chain headaches that have plagued retailers, manufacturers and other industries have been an earnings windfall for freight carriers.
Today, U.S. transport companies are logging record profits. “The logistics sector continues to benefit from strong tailwinds driven by e-commerce,” explains David Levine, Senior Managing Director of Blackstone Real Estate.
Midmarket Deals Heating Up
If you don’t have $2.4 billion in your pocket for acquisitions, or your company won’t fetch ten figures on the market, don’t despair. M&A in 2022 will not just be a game for giants.
In 2021, according to Pitchbook, there were 106 deals in T&L in the U.S. in the midmarket range of $10 million to $200 million. Seventy-five were classified as venture financings, while 31 were M&A/buyout deals. That portends more acquisitions to come, as strategics and private equity investors wake up to the opportunities in T&L and find the right targets to do what M&A done right can do: reinvent their business model and fundamentally redirect their company.
This year, T&L company sales are estimated to total more than $200 billion and midmarket T&L companies that cut delivery times, utilize artificial intelligence and machine learning to drive efficiencies, or offer unusually strong workforce competencies will be extremely attractive targets for investors.
With demand much higher than supply for strong T&L assets, valuations might head into frothy territory. Clearly, investors are looking across the value chain, seeking to “future-proof” their bottom lines from painful disruptions, and develop the speed, efficiencies and economies demanded by customers today.
Avoiding M&A Pitfalls
As an M&A professional handling deals of this type for more than a decade and a T&L executive that has built and sold several companies, we can offer several pieces of advice to midmarket owners planning a sale amid this disruption and boom in the T&L sector.
Our first piece of advice is: Don’t try to wade into the M&A waters all alone. Those seas are choppy. If this is the year you want to sell your T&L company, get a credentialed investment banker to help you get across the finish line. As a recent article in the Harvard Business Review noted, the vast majority of business sales in the mid-market never close. The last thing you want in a boom market like this is a broken deal.
Additionally, maintaining confidentiality, even before your transaction begins, and all through the process, is essential. Deals like these are not comparable to selling your house and putting a sign out front.
Then there is the all-important matter of your workforce. Everybody knows these days how important good employees are. So, ask yourself: Will some of my employees represent a key value for buyers looking for roll-ups or bolt-ons? If the answer is yes, establish non-solicitation and non-compete agreements with those key employees ahead of the sale. Continuity helps with post transaction integration.
There is also the need to do due diligence on yourself before someone else looks you over. Get an experienced M&A lawyer – not your college roommate, but a lawyer who does M&A deals day in and day out – as well as an accountant or tax advisor to review your company’s financials, customers, revenue projections and the like. The goal is to see your company from the investor’s point of view. It can be challenging to do this, but it is essential to success. After all, that investor is the one taking on the future and all the risks associated.
Asking the Right Questions
Take the time to think about questions like: Would you buy your company if you were creating a T&L behemoth portfolio today? Would you be willing to finance this transaction? What risks do you see in the next ten years?
We can assure you this empathetic approach reduces surprises and saves time. And the two things that kill deals are time and surprises. Putting yourself in your buyer’s shoes will give you a sightline into what information and analysis they will need before they feel comfortable writing that final check.
Lastly, understand that M&A is a deeply emotional process, not just a financial transaction. It’s normal to feel anxious but try to keep your nerves and your ego under wraps. Don’t equate a sales price or due diligence questions to criticism. Have some understanding for the investor’s dilemma as they try to discern the best path to success in today’s rapidly changing global economy and a fragmented T&L ecosystem. Remember, every T&L company, including yours, has strengths and challenges.
With pandemic-driven disruption and new technologies fueling dramatic change across continents, industries, cultures and lives, transportation and logistics has become the essential plumbing of our planet’s day-to-day business.
There has never been a better time to sell your T&L company. If you surround yourself with the right team and strive to understand the investor’s point of view, now is the time to execute the M&A deal of a lifetime and lift off to your next adventure.