Investors flock to freight brokerages despite economic outlook
Mergers and acquisitions of brokerage firms continue even as cooling e-commerce tamps down transportation demand, Capstone Partners says.
Merger and acquisition activity in the freight brokerage sector continues to be “overwhelmingly positive” despite economic turbulence and warnings of a transportation recession, as brokers ride the momentum of white-hot logistics activity kicked off by the pandemic, a market report says.
Judging by busy transaction activity in early 2022, demand is particularly high for acquiring companies with hybrid broker models that combine brokerage and distribution, according to the report from Capstone Partners, a Boston-based investment banking firm. Specifically, brokers with an asset-based arm, proprietary technology, and unique offshore strategies have seen heightened demand, Capstone said in its “July 2022 Freight Brokerage Market Update.”
The activity comes in the face of steady warnings of a recession in the trucking and freight brokerage markets as the frantic pace of pandemic e-commerce growth reverts to historical levels.
“Signals in Q2 2022 potentially indicate activity normalizing as tender rejection rates have shifted and spot rates have fallen from their record highs,” Capstone said in the report. “However, in contrast to the rumblings of recession, consumer demand presents a strong case for a positive outlook on the future for third party logistics (3PLs). Even as supply chain challenges ease, brokers have been highlighted as key players in the future of logistics.”
While those cloudy forecasts may spook some “generalist” private equity firms away from making offers to buy brokerage firms, more experienced investors see the trends simply as evidence of natural market cycles, the report said.
Recent examples of specific deals include the private equity-owned trucking firm Transport Investments Inc., which in March acquired SmartWay Transportation LLC, a multi-modal freight brokerage and transportation management company. And in April, logistics service provider Ascent acquired a majority stake in the brokerage Central Minnesota Logistics.
Two much larger deals happened in 2021, when private equity firm The Jordan Company L.P. (TJC) acquired the freight broker and third-party logistics provider (3PL) Echo Global Logistics Inc. And online trucking broker Uber Freight bought the Texas third party logistics provider (3PL) and fellow broker Transplace.
Discover how macroeconomic trends are impacting M&A activity, what business models are garnering interest from acquirers, and an exclusive interview with Richard Piontek, CEO of Direct Connect Logistix, in our latest #FreightBrokerage M&A Update:https://t.co/SPIP5q4WIo
— Capstone Partners (@capstone_ibank) July 14, 2022