The Logistics of Transacting in Logistics

Enterprise value in the current marketplace: premiums vs. commodity values. Not all logistics companies are equal.

Since 2021, the global logistics market has seen record M&A activity and is expected to grow at a 6.8% CAGR through 2030. Large players are pursuing consolidation strategies to expand their networks and owners are capitalizing on an active and competitive M&A environment.

Here we explore the qualities that deliver value to business owners in a sale – we hope you appreciate these insights. We would be more than happy to share additional thoughts on the current market.

Customer Value Proposition

Type of Provider: Integrated service providers that offer intermodal logistics, warehousing, and inventory management (3PL/4PL) in de-commoditized markets command a premium to single-service trucking companies / contractors (2PL).

Customer Relationships: Providing bespoke offerings through customized solutions and special projects allows for increased penetration. Maintaining Master Service Agreements provides customer security. Both directly correlate to an increase in enterprise value.

Customer Diversification: Leaning into relationships that deliver significant growth opportunity is common. However, if a single customer becomes a majority of revenue, the perceived risk of the overall business increases, leading to a lower valuations and smaller pool of potential acquirers who must “buy-in” to the major customer.

Market Factors

Visibility & Stability: Buyers favor de-commoditized and high-growth industries that are insulated from market cyclicality. Multiples are tied to the consistency and quality of the business. Contracted business with embedded services commands a premium to simple quoted jobs. Buyers are wary of margin expansion from commodity work that is driven by short term demand.

Diversification: While diversified end-markets offer a hedge against economic downturn, focused services to one or two non-cyclical markets are viewed as differentiated and receive a premium.

Full Time Labor: Truck drivers, dockworkers, and warehousemen have been in short supply since COVID began. In-house, full time employees with high utilization and low turnover rates are significantly more desirable to buyers than independent contractors.

Strategic Assets

Asset-Light / Asset-Free: Acquirers like to stay in their own lane and will not acquire a business that is more asset intensive than their current level, reducing the buyer pool for asset-heavy sellers. Further, companies with limited or no assets generate more free cash flow and are valued higher than asset-heavy counterparts.

Safety Record / Fleet: Fleet age and condition as well as a demonstrated record of driver safety are crucial factors. Buyers will concentrate on historical and projected maintenance and replacement expenses as a key driver of valuation, especially in 2PL businesses.

Electrification: Adopting a low carbon fleet (electric vehicles, forklifts, etc.), will better position a business to comply with medium-term changes in regulation.

Warehouses & Location: Facilities that are considered strategic will receive a premium. Strategic qualities include ample warehousing space, intermodal locations (seaports, railroads, or airports), specialized equipment (overhead cranes, automated forklifts), and unique designations (foreign trade zones, overweight licenses).