Prepare For the M&A Parade
January was a telling month in the Canadian trucking industry as two iconic families I’m proud to call friends suffered very different fates.
Meyers Transport, the LTL carrier in Belleville, Ontario, shut its doors after 90 years in business. Even in defeat the family showed its class by walking away with their heads held high instead of stiffing suppliers.
Conversely, it was great hearing that the Ledson family of hybrid Cavalier Transportation in Bolton, Ontario cashed in their chips and sold to TFI International (TransForce), the industry’s Pac-Man.
The closing of Meyers and the sale of Cavalier are just two tales of a sector in upheaval. Every time you crack open an industry magazine there’s another deal or a demise to read about, and no shortage of reasons for it: Baby-boomer truckers who made their dough and are ready for Florida; big dogs with an insatiable appetite for capacity, customers, and drivers; small and midsize fleets struggling with what to do next.
M&A trends are shaping this industry in ways that we haven’t seen in awhile.
Big get bigger
The investment bankers who predicted years ago that scale would be the key driver of domestic trucking industry consolidation were bang on. The facts don’t lie.
The 2007 Today’s Trucking Top 100 showed that the Top 10 carriers owned 60,953 pieces of equipment. Fast forward a decade and that number has grown to 92,716.
Scale like that makes it tough to compete when you’re a little guy playing in the wrong sand box. Fasten your seat belts because, with so much capacity in so few hands, this trend will continue. It will be interesting to see what happens to shipper rates as domestic options keep shrinking.
Seller Economics 101
The number of carriers looking to join the Merger and Acquisition parade far exceeds the number of companies that are prepared for the move. Potential buyers are actually struggling to find good matches as a result.
It’s because many small carriers have simply done little or nothing to prepare to sell. They have no identity. No “secret sauce”.
When you can do one thing really well, buyers will pay a premium. Cavalier is a great example. Their secret sauce came in the form of niche lanes to Rochester and Syracuse, New York, and it was so valuable that George can now take care of generations of Ledsons.
Carriers are suddenly in love with “freight pimps”.
Once seen as the bane of the industry, freight brokering lets a carrier take advantage of strong existing customer relationships and grow without adding a pound of steel.
Many carriers I have spoken to also like the flexibility the business gives them when markets go soft. Their thinking is that, when trucking rates decline, so will the rates they pay to outsourced carriers. The better gross margins also help.
The ELD mandate
Consolidation isn’t the only thing wreaking havoc on the bottom line of smaller fleets. The impending Electronic Logging Device mandate in the U.S. will push many over the cliff or onto the sales block once they’re forced to follow the letter of the law.
The current $1.31 exchange rate and cheap access to capital have U.S. buyers salivating at the prospects of shopping north of the 49th parallel. Throw in the cross-border expertise that Canadian drivers offer and you have a perfect storm of more U.S. players looking for Canuck market share.
Best of luck to both the Meyers and Ledson families. The worst part of consolidation is the number of good friends that I will no longer see on the industry social circuit. Going to miss them both.