Business turmoil triggered by the pandemic may have paused the flurry of mergers and acquisitions (M&A) that have marked the third party logistics (3PL) sector in recent years, but investors are now looking at 2021 as a year when they can resume pumping new funds into the industry, a panel of speakers said today.
In fact, one of the impacts of the coronavirus crisis has been to accelerate logistics providers’ adoption of new technologies and “digitalization,” which could actually boost their performance in the long term, Jill Raker, a managing partner at the New York-based private equity firm Greenbriar Equity Group LP, said today during a session at the Council of Supply Chain Management Professionals (CSCMP) EDGE 2020 show.
In the meantime, private equity experts who examine corporate results are largely discounting firms’ poor revenue creation this year—knowing that the nation’s economy is struggling through a recession—and instead inspecting those business’ bottom-line earnings to see how they performed under pressure, she said during a session titled “The Mergers and Acquisitions Rollercoaster in the 3PL Industry.”
And analysts know it doesn’t make sense to compare financial reports from 2020 with statistics from “normal” years. Rather, they are asking how each company has performed in comparison to its direct competitors, who are facing the same pandemic challenges, she said.
Indeed, a company that was doing well in the pre-Covid world and is now simply surviving can demonstrate a “huge selling point” of the resilience and adaptability of its business plan and of its management team, agreed another panelist, Rob Levin, the CEO and managing director of Republic Partners, a Chicago-based investment banking firm.
That value could pay off handsomely when the pace of mergers in the logistics sector resumes in 2021 or later, but in the meantime, many buyers have put the brakes on making any new deals, citing financial uncertainty. “It’s better to walk away from a deal you’re not sure about than to do a bad deal,” Levin said. “You don’t get that time and that money back.”
Likewise, Frank McGuigan, the CEO of Texas-based 3PL Transplace, said companies seeking acquisition targets have largely paused their M&A activity, but are still collecting data on possible targets. Those buyers are not comparing companies’ current results to 2019, but rather judging 2020 as a unique test case that reveals each firm’s resilience, he said.
“An acquisition is one of the riskiest things that you can do as a company,” McGuigan said. “As everyone says, ‘You don’t want to bring a burning mattress into the house.’ Because you never really know exactly what you’re buying. You think you know what you’re getting, but then you always find out that things are just a little different.”
Transplace is one of the chief examples of how mergers and acquisitions have transformed the 3PL arena in recent years, having racked up takeovers of ScanData Systems Inc. and Lanehub in 2020, after buying Yusen Logistics (Americas) Inc.'s intermodal marketing company and over-the-road freight brokerage group in 2018.
And other firms have been nearly as busy. Earlier this year, the 3PL GlobalTranz Enterprises Inc. acquired fellow 3PL Cerasis Inc., capping off a year in which GlobalTranz itself was sold twice and marking GlobalTranz's 11th acquisition since January of 2017. Other examples include NFI’s acquisition of CAI Logistics in August and of G&P Trucking Company Inc. at the end of 2019, as well as BlueGrace Logistics’ move to buy Anthym Logistics in March.