A number of mid-sized logistics providers are putting themselves up for sale in an indication that binary market dynamics—go big or go specialized—are rearing their head in this sector. The Wall Street Journal recently reported on the trend:
Philadelphia-based logistics firm BDP International Inc. and Pilot Freight Services, a Lima, Penn.-based freight forwarder, are both exploring sales, people familiar with the matter said. The companies would likely fetch under $500 million each, though Pilot is considering selling only a stake, the people said. Other logistics companies around their size are likely looking for buyers as well, they said.
The offers signal a pick up in deal activity in the sector following a slowdown in recent months. To help navigate an unpredictable freight market, many companies have been making deals to expand into new business lines, allowing them to sell lucrative packages of transportation services to retailers and other shippers.
“Growth is always important and organic growth is difficult right now,” said Daniel Herron of Herron & Associates LLC, a financial advisory firm specializing in logistics mergers and acquisitions. “Money is not expensive to borrow and if you are good at [mergers and acquisitions], it is very efficient.”
Pilot, a second generation family-run company, arranges air cargo shipments and performs ground transportation services. The company is expanding its services catering to e-commerce shippers, including full-service home deliveries for appliances, furniture and other large online orders.
There were 48 transactions in the first quarter involving logistics companies, compared to 56 the year prior, according to the WSJ report. Logistics deals totaled more than $172 billion last year, it also notes. A figure that sizable underscores just how quickly the logistics market is changing.
Analysis: Not Much Room in the Middle
Acquisitions pose significant risks for logistics companies, given the additional complexity, number of assets and fixed costs they take on. Those factors don't always jibe well with the fact that shipping, particularly of the longer-haul variety, can be a cyclical business, says Constellation Research VP and principal analyst Guy-Frederic Courtin. "If I invest in companies with rail or trucks and ships, and demand goes down, I can't just park the boats at the dock," Courtin says. "It's an interesting dilemma."
Meanwhile, demand for last-mile fulfillment services is experiencing a steady rise in demand thanks to e-commerce and rising consumer expectations for faster and faster delivery options.
For logistics companies today, the question reflects the condundrum faced by other sectors, such as retail. "Increasingly, you've either got to be specialized or you've got to be big," Courtin says. "As a shipper, you've got to decide do I want to specialize in say chemicals, or refrigerated products, or try to become massive and gain that volume and scale. If you're the guy in the middle, I think you get squeezed."
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