By Mike Galardi
The merger and acquisition environment in the trucking industry likely will remain fairly robust for several more years although we may see some fluctuation in valuations.
Owners who started their businesses 25 or more years ago are approaching retirement age, and if they don’t have family members to take over, they will be looking to exit their companies via a private sale or merger.
There’s good news for sellers. Buyers are out there. Trucking companies are looking to expand their geographical reach, build density, add specific capabilities, or enter a niche specialty via acquisitions of small to midsized trucking firms. They are also interested in acquiring drivers, and to a lesser extent equipment.
Capital Alliance Corp., which recently advised in the sale of a less-than-truckload (LTL) carrier, anticipates these exits by long-time industry players will be ongoing for several years. In the deal we just completed, which is confidential at the request of the seller and the buyer, we had numerous companies interested in the company, a regional LTL carrier.
One buyer in particular met the seller’s nonfinancial goals exceedingly well and more than met its financial goals, but we had several well-qualified buyers interested.
TRUCKING INDUSTRY CHALLENGES
While deal flow has been steady, public trucking valuations over the past six months have declined, likely the result of the lackluster volume growth, the West Coast dock strike, concerns over coming regulatory and other changes, and uncertainty over whether the Federal Reserve would raise interest rates.
On Sept. 17, the Federal Reserve’s Board of Governors decided to keep interest rates steady, suggesting potential future weakness in growth. As a result, there will remain a level of uncertainty going forward which could act to hold valuations down.
To be sure, LTL transactions such as the one Capital Alliance just completed, can be more challenging to complete than truckload carrier deals. That’s because LTL margins tend to be lower, capital costs for fleet replacement are higher, and facilities are more challenging to integrate and/or sell. Still, deals are getting done and there are many looking to make additional acquisitions to build scale and density.
LTLs have had an advantage, however, in the national driver shortage. The shortage — caused by baby boomer drivers retiring in larger numbers than new drivers entering the trucking industry — is especially acute for truckload carriers whose drivers can be gone for weeks at a time. LTL drivers, in contrast, usually are home every night or every other night, an advantage for LTLs when it comes to recruiting drivers.
In conclusion, we expect healthy M&A activity at least over the next couple of years, possibly longer. Whether valuations will tick up or continue to decline, however, remains to be seen. That likely will depend on a number of factors, including the strength of the U.S. economy during the final quarter of 2015, the outlook for 2016, changes in safety, equipment, driver and other regulations, as well as what the Fed does with interest rates.