The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates.
While the ball was already rolling prior to COVID-19, Transplace’s most recent acquisition is a strategic move that couldn’t come too soon. The leading logistics provider announced on Sept. 1 its acquisition of LeanCor Supply Chain Group, a consulting firm specializing in lean principles. This marks Transplace’s third acquisition of 2020.
We’ve seen recent, similar moves by other leaders in the industry, and for logistics companies considering their near future, it might be a sign that it’s time to allow another option on the table — selling your company. Through COVID-19, we’ve felt the need for keen adaptation to come out ahead. For those unsure about their future or unable to sustain another potential downturn in your business from the recession, the current opportunity for cheap capital gives another reason to consider selling. You could find the time and conditions are right.
“If you own a logistics company, now is an ideal time to sell your company. Are the valuations as high as the peak levels of 2019? No. But we may never see those frothy levels again. The better question: Are you better off selling today, or next year?” says Benjamin Gordon, Cambridge Capital CEO.
“For several reasons, 2020 is far better. First, good companies continue to acquire. For instance, our M&A advisory team at BGSA just helped NFI to acquire CAI Logistics. Second, the capital markets continue to be favorable. Debt is cheap. And equity partners, like Cambridge Capital, are deploying capital to fund winning companies like Bringg and Liftit. Third, public companies and private equity platforms have a motivation to buy, to meet their shareholders’ growth expectations? Fourth, taxes are likely to spike in 2021,” Gordon says.
“Vice President Biden, who is leading by approximately 8 points in the latest polling, has already outlined his plans to increase taxes on multiple levels, including capital gains. So after-tax proceeds will likely never be better than they are now.”
Strategic acquisitions are happening
Transplace is gaining an edge from the consulting market through LeanCor, and earlier this year, it acquired Lanehub, a networking platform focused on reducing waste through shipper and carrier collaboration. A few months later, it acquired ScanData Systems, with its parcel TMS capabilities to allow Transplace to serve the direct-to-consumer space.
GlobalTranz Enterprises, another company making strategic moves, announced its 11th acquisition in just over three years, with Cerasis, a managed transportation and third-party multimodal service provider.
When the market experiences a significant merger or acquisition, competitors are not immune to the effects. That company, now with a larger market share, has increased its competitive advantage and instigated growth. Others in the industry will need to sharpen their edge to stay relevant and survive.
The market is going to be volatile
There have been changes in the market from a number of factors. The recession is causing financial stress. Businesses are learning to adjust from a change in consumption patterns, including the recent boom of e-commerce. The industry was already pushing toward further digitization and now the need for contactless operations is even more apparent. As leading companies stake their place in the market with their digital solutions, it creates a shift and forces smaller companies to take notice.
Combine the expected long-term changes with the immediate outlook to consider the potential for market volatility. We are currently experiencing an inflationary spot market, and this will extend into the contract market in the upcoming year. Rates are high, volume is up, capacity is tight and companies in our space stand to do well this year. Beyond that, who knows? Logistics companies that thrive into the future will need to be invested in the long-term outlook to weather the ups and downs.
“For us it made so much sense to sell. We were very heavy in open-deck freight and struggled to be a player in the ultra-competitive van and reefer market. FitzMark was very strategic in buying Logistics Made Simple. With the acquisition we became powerful in both the van/reefer market and the open-deck market overnight. Being able to combine carrier networks has proved to be a huge asset to our customers regarding cost and reliability. On top of that, our cultures aligned and we had almost zero customer crossover,” said JD Davis, formerly of Logistics Made Simple, which was recently acquired by Fitzmark.
If you’re unsure of your willingness to ride it out, selling could be the smart move while the opportunity is easily available.
Capital is cheap
To help small and midsize businesses through the economic conditions caused by COVID-19, the Federal Reserve initiated the Main Street Lending Program through the end of 2020. This program gives businesses access to credit in an effort to combat their financial strains.
Before the disruption of COVID-19, the financing world found private equity firms beginning to offer credit, giving an option to their bread-and-butter PE model. The demand for loans was increasing as interest rates decreased. This created favorable conditions for companies to have access to cheap capital.
If your logistics business is looking to grow, the financing options are available, but if you’re taking into consideration the factors of the economy and market volatility, you might use the situation of cheap capital for another use, namely getting your company a buyer.
What’s next?
Business, before and after COVID-19, demands us to make adaptations and often tough decisions. We can plan ahead, but the theme of 2020 for many people and businesses is dealing with the unexpected.
The natural question if you’re thinking of selling your logistics company is what your next career move would be. You might use this opportunity to take a breather and even enjoy some security that comes with working for another company (or the same company, if you want to work for your acquirer).
Whether you are still in your startup phase or you’re a mature business, if you are producing revenue and have a great team, your company is worth something and you might find that valuation to be much more favorable than it was a year ago.
Despite the significant impacts made in technology over the past 15-20 years, supply chain businesses are still very much relationship-based. Your business has probably been built upon many relationships over time, and those relationships prove to be valuable and profitable when you sell your business. While those relationships are very much the most important element of your success, remember, you didn’t become an entrepreneur to make friends, you did it to make money. Now may be one of the best times in history to do just that by selling your business!