By Marc Nadritch, Partner, CohnReznick Advisory – Transactional Advisory Services
With ecommerce continuing to grow at a rapid pace—online sales worldwide rose 18% to almost $3 trillion in 2018— transportation and logistics (T&L) companies that provide transportation, logistics and fulfillment services on behalf of ecommerce companies, continue to garner interest as acquisition targets. In particular, asset-light T&L businesses have seen their valuations spike in a very active M&A landscape. Over the past five years, the multiples at which these companies are selling have climbed from about eight times EBITDA to as high as 12 or 13 times EBITDA.
Several factors are impacting valuations. First and most obvious, T&L companies are benefiting from the continuing growth of ecommerce. Online shopping now accounts for nearly 10% of total retail sales in the U.S. and these sales are growing 14.5% year over year, according to the U.S. Department of Commerce. This means that well-positioned T&L companies are in high demand and can command outsized selling prices.
A second reason for the rising valuations of T&L companies is the fact that the market is saturated with buyers, including many strategic acquirers with plenty of cash on their balance sheets. These players are willing to commit high bids in auction processes to purchase companies they can synergistically integrate with their own to create long-term shareholder value.
Additionally, there are many private equity funds in the T&L space actively competing against the strategic buyers. These PE firms are investing in platform companies that can serve as a foundation for rolling up multiple smaller companies in the same industry.
And then there’s Amazon. The ecommerce giant, which is steadily bringing more of its logistics in-house, keeps raising the bar with services like one-day delivery in every market. This is the “Amazon effect.” It compels T&L providers to keep pace and improve their services if they want to attract new customers—and potential buyers.
So, moving forward, how can T&L companies distinguish themselves in the market to attract the highest valuation possible? Here are three ideas:
1. Offer value-added services. Delivery now involves much more than dropping a box at the front door. Some T&L companies are adding white-glove services that ensure high-end freight like furniture and electronics is not just delicately handled but also properly assembled and installed in the customer’s home.
2. Leverage technology. The strategic use of technology is helping T&L companies fuel growth while at the same time enabling them to deliver packages faster and more efficiently. Some businesses have developed proprietary software that allows them to better track the location of their deliveries, predict where and when capacity will be available, and automate the process of matching the right truck with the right shipment at the right time.
3. Embrace specialization. The emergence of specialized T&L businesses that focus on niche sectors is a trend taking place in the market today. Examples include providers that have developed expertise in delivering medications to hospitals or those that deliver auto parts to repair shops. Companies that master the art of specialization can build an extremely loyal customer base and ultimately command strong valuations.
The outlook for M&A activity in the T&L space looks very promising for at least the near future. Despite global economic uncertainty and the potential emergence of disruptive new technologies, we expect the T&L market to remain highly competitive and for valuations to hold and test historic highs.
Marc Nadritch is a partner in CohnReznick’s New York office and a member of the Firm’s Transactional Advisory Services practice. With over 17 years of experience, he has led financial due diligence engagements related to both corporate and private equity clients’ acquisitions in various industries with a primary focus on middle market transactions