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Trucking Mergers Could Be Big in 2014

Merger and acquisition (M&A) activity in the global transportation and logistics industry ended on a very strong note in 2013. M&A featured a 57% increase in deal volume and more than doubled the deal value in the fourth quarter, according to PricewaterhouseCoopers (PwC). The company concluded that even more deals should be conducted in 2014, especially in the U.S. trucking industry.

“Trucking and logistics are more fragmented than most other U.S. transportation modes (and) have relatively low barriers to new M&A,” said Jonathan Kletzel, U.S. transportation and logistics leader for PcW. “And since trucking tends to underperform most other modes on the basis of profitability, M&A can help improve the overall performance.”

M&A could be beneficial in the trucking industry for other reasons, too. It can help improve rates by reducing the competition for freight volumes. Additionally, it can help bring in new customers in a freight market that has remained a slow area of growth.

One example of a merger benefiting both parties came last year in a $95.6 million acquisition of drayage carrier Central States Trucking Co. (CST) and its Central States Logistics division by Forward Air Corp. CST’s seven terminal network and 500 office employees and drivers generated $66 million in revenues in 2013, and will only help Forward Air enter new markets and expand its customer base.

As the economy continues to recover, there should be more mergers in the trucking industry.

“The ideal time to secure the best price for a fleet is when the demand for fleet services is climbing. Therefore, we will see more fleet mergers (and) as the economy has recovered, we have seen a steady increase in demand for fleet services which translates into increased profits,” said Max Safavi, managing director for Allegiance Capital Corp.

Safavi says that buyers are willing and able to pay premium prices now because they’re sure they can get a good return on their investment. He also says age is another factor. A lot of fleet owners’ industry experience allows them insight on taking advantage of a sell opportunity.

He believes three additional reasons will help to spur more U.S. trucking industry merger activity in 2014:

  • Value multiples are increasing which means that buyers will have to pay more for well-managed and well-positioned fleets.
  • Banks are more willing to provide buyers the cash they need to purchase fleets and the financing rates are incredibly low.
  • Size matters as three small fleets with 100 combined trucks don’t operate as efficiently as one fleet with 100 trucks.

“Larger fleets are more efficient and cost effective, and one of the most cost effective ways to build a large fleet is through acquisitions,” said Safavi. “Also, when a larger fleet is doing well, they can afford to pay more for a smaller, attractive fleet that meets their strategic plans, because they know they will be able to use that fleet to quickly add to their profitability.”

All these factors play into why he thinks 2014 will be a great year for trucking firms, especially small ones, to sell. The economy being up, shipments being up and demand for fleet services being up gives owners of well-managed and well-positioned fleets a very valuable product to sell.

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