Experts Predict More Mergers as Trucking’s Fortunes Improve

This story appears in the Jan. 9 print edition of Transport Topics.

Trucking industry mergers and acquisitions are expected to surge this year because of factors such as tight capacity and eager private-equity buyers, several industry experts have said.

Some analysts predicted transactions could double or even triple this year, compared with 2011, and they said that many deals are aimed at acquiring drivers or new business, rather than equipment.

There were 80 acquisitions involving motor carriers and logistics companies last year, based on Transport Topics’ count, up sharply from the 44 transactions during 2010. Several firms made multiple deals during the year, including Roadrunner Transportation Systems, Celadon Group, Echo Global Logistics and Canada’s TransForce.

“It is going to be a very, very strong year for trucking,” said Andy Ahern, CEO of Ahern and Associates Ltd., a merger and acquisition consulting firm in Phoenix. He pointed to high interest from private equity buyers and fleets that want to ensure adequate capacity.

“Carriers are telling me, ‘We have done our planning. We have to go out and buy something,’ ’’ Ahern said. “They’ve made commitments [to shippers], and they don’t have the trucks or drivers.”

“I don’t see motor carriers saying, ‘I will grow by adding trucks,’ ” said Lana Batts of Transport Capital Partners in Arlington, Va. “They say, ‘I will grow by buying another company that makes strategic sense.’ That means they are buying to add drivers.”

Batts told TT that another reason for sales is that the founders of many truckload carriers that were created shortly after deregulation in 1980 are “looking for an exit strategy” as they approach retirement.

“We think 2012 is a going to be a strong year,” said David Freeman, a director at Capital Resource Partners Inc., Knox-ville, Tenn. “The trucking industry has had a full year of recovery and improved earnings.”

Buyers will pay more now, he said, because profits and equipment values have increased. Last year, the average profit for publicly traded carriers increased by nearly half, and prices of used trucks rose by nearly 30%. No cumulative data are available on 2011 deal prices because terms are not disclosed in most cases.

“A lot of private equity companies are active, looking for non-asset-based providers,” Pete Liebermann, managing director of Schneider Downs Corporate Finance.

“You can’t talk with anyone with a private-equity focus who isn’t interested in third-party logistics,” Liebermann said. “There just aren’t enough deals out there for those [private equity] guys.”

Private-equity money is being attracted to trucking because the industry’s assets still are “underpriced,” Ahern said, despite such recent developments as higher trucking profits and used equipment prices.

Batts said non-asset-based carriers are more attractive to buyers than asset-based fleets because they allow them to avoid replacing aging equipment that has high mileage and relatively low fuel economy.

Batts said buyers were interested particularly in companies that use owner-operators or offer extensive dedicated contract-carriage service.

The 2012 merger and acquisition market got off to a fast start last week.

Private equity firm Platinum Equity announced that it has acquired Keen Transport Co., which owned heavy-haul logistics company Keen Transport Inc. and general commodities motor carrier Cressler Trucking Inc.

Canada’s Contrans said it has acquired Wilburn Archer Trucking, another Canadian fleet.

Unlike Ahern, Freeman and Batts, Liebermann was reluctant to predict an immediate increase in trucking deals. Liebermann said he expects the market will start out slowly and then heat up as 2012 unfolds.

Transactions are likely to be limited early in the year because of lingering concerns about U.S. economic and European financial conditions, Liebermann said. The deal pace will accelerate later in the year, driven by the prospect of increases in the capital gains tax, currently at 15%.

Those taxes could be raised next year to 20% or more if tax cuts that began during President George W. Bush’s administration are allowed to expire.

Batts disagreed with Liebermann, saying that the capital-gains tax issue is secondary to the decision to go ahead with a sale.

Freeman said there still are difficulties obtaining financing for transactions involving fleets in the $30 million-to-$50 million revenue range.

“In the early 2000s, a company that wasn’t performing well could still find a way to sell because they had access to capital,” Freeman said. “Now, if a company isn’t performing well, buyers have to have cash in hand to get a deal done.”

Batts said that deals for carriers with less than $50 million in revenue are difficult to complete because of costly “due diligence” before the transaction is done. The bigger revenue stream from larger deals makes it easier to pay due diligence costs, she added.

Liebermann also said that acquisitions by well-funded public companies such as J.B. Hunt Transport Services Inc. could prompt more deals and drive up the value of transactions.

He also predicted that increased energy exploration activity will drive more transactions for carriers that support oil and gas exploration.