Though most logistics companies are operating with reduced revenue and earnings, deals in the sector have not ground to a halt.
One recent deal was significant enough that the Tenney Group, one of the leading transaction advisers for logistics deals, saw fit to publicize it, calling it a “thoughtful” transaction between two companies dealing primarily in the refrigerated sector with a unique structure.
Under the deal, Ohio-based Dancer Logistics is being acquired for an undisclosed sum by FST Logistics, which is also in the Buckeye State. Tenney Group advised Dancer in the transaction.
Among the reasons Spencer Tenney, president of the Tenney Group, chose to highlight the unique nature of FST and what that means for Dancer is the FST employee stock ownership plan (ESOP).
“This was not only an opportunity to create liquidity for the Dancer owners, but was also a great way to link up to an ESOP, which has tremendous career- and wealth-building opportunities for the Dancer employees,” Tenney said in an interview with FreightWaves.
Tenney said there are “many different exit channels that have merit” for logistics company owners. While those owners need to consider all of them, “what we’re seeing is that so many of our industry folks understand how much employees influence the overall success and growth of the business. So selling to a buyer with an ESOP can be a pretty compelling way to say thank you to the employees.”
What’s a thoughtful deal?
Tenney sought to define the description, provided in a statement by the Tenney Group, of the deal as “thoughtful.”
In the current market with higher costs of capital and a weak freight market, he said, “it is important for buyers and sellers to be leaning in and be collaborative about not only the value, but a lot of the post-transaction integration and strategy,” he said. Deals getting done in these challenging times are where “there is a very high level and thoughtful level of collaboration on all those areas.”
The reality, though, for any transactions at present, Tenney said, is that multiples of earnings before interest, taxes, depreciation and amortization, or revenue – but more likely the former – are getting set against a lower “multiplier,” without a significant shift in the actual multiple used in a deal. The multiplier is the base number for the deal.
Tenney declined to put a specific number on any sort of “average” multiple in the current market for logistics companies. Details of the Dancer-FST deal were not disclosed.
Logisyn deals report
Logisyn Advisors, which tracks deals worldwide in the logistics sector and publishes them in a monthly report, lists 26 deals done in May, 34 in June and 28 in July.
The Logisyn list of deals is not just for asset-light 3PLs. For example, the July list includes the Knight-Swift acquisition of LTL carrier Dependable Highway Express. “Knight-Swift (NYSE: KNX) is capitalizing on that void left behind in the wake of the Yellow shutdown, with the goal of building a nationwide LTL business,” Logisyn said in its report.
There’s been enough activity for Tenney to say that “we’ve been very encouraged by the deals that are actually getting done.”
But what is being consummated, he said, occurs more frequently with a company that has a “niche element that provides some insulation from some of what is happening in the freight market.”
When that occurs, Tenney said, the acquisition target “can be valued in a way that buyers can very clearly understand what’s going on in the business and present something that is fair and at market (value) with what’s being made available from sellers.”
While a reefer-specialized company might fall under that definition, Tenney demurred on saying whether that was a key factor in the Dancer-FTS deal. More generally, the kind of niches Tenney said have helped deals get done “usually come down to a combination of category and customer concentration.”
Unique and difficult to replicate
“If it’s a dedicated business and if you’re bringing something to the market that is unique and difficult to replicate,” Tenney said, that will help get a deal done.
In the case of Dancer, he said, the company has “strong customer relationships that have been in place for a long time, and that was very appealing to FST.”
If you’re an owner looking to sell without those unique characteristics, “it does not make sense for them to exit at the present time based off their current trailing 12-month performance,” Tenney said. “In most cases, it doesn’t make sense for them to engage until the market fully returns.”
Shawn Dancer, president of Dancer Logistics, found FST an attractive buyer also because he wants to “stay involved in the business without having the weight of the world on your shoulders,” Tenney said.
“He wants to be involved in the industry and wanted to align and lock arms with a company that is doing exciting things,” Tenney said.
He mentioned higher interest rates having slowed the pace of deals. Logisyn took on that issue in its May report.
“[The] high-rate environment has thrown a wrench in the private equity model,” Logisyn wrote. “Fearing the possibility of discounted market valuations, PE exits were few and far between as well, leading to a substantial increase in continuation funds over the past 18 months. However, PE has done a good job at adapting to the new landscape.”
That adaptation includes paying investors dividends to keep them happy rather than “rushing into an exit and potentially taking a haircut,” Logisyn wrote.
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