The 2015 activity, which in some cases bore the fruit of the seeds planted as far back as early 2014, stands in stark contrast to the M&A torpor that existed between 2008 and 2014. That period included the financial crisis and so-called Great Recession, a time when many companies were focused on survival rather than growth. Yet industry CEOs stayed out of the M&A game even as U.S. and world economies recovered, albeit tortuously.
Robert C. Lieb, professor of supply chain management at Boston's Northeastern University, who conducts an annual survey of 3PL CEOs, said respondents to his 2014 survey believed that post-acquisition integration challenges were too daunting and potential acquisitions insufficiently accretive to justify an aggressive buying strategy.
That attitude seemed to change in 2015. Perhaps it was the slowdown in demand for virtually all transportation services—while 3PL demand continued apace—that pressured some CEOs into achieving top-line growth through acquisition instead of through organic measures. If that is the case, then M&A activity may be extended well into 2016. For example, sluggish demand and ample truck capacity have forced many truckload carriers to ratchet down forecasts for increases in base prices to 1 to 2 percent (from 3 to 5 percent). Rate compression, combined with rising costs for drivers, power units, and trailers, could put further pressure on organic revenue growth.
"Capacity remains loose and pricing for carriers is weak," said Ben Cubitt, senior vice president of consulting and engineering for Transplace LLC, a large Frisco, Texas-based 3PL. Cubitt said earlier this week that he finished three bid reviews before Christmas and that "all showed strong savings."
Evan Armstrong, Armstrong & Associates' president, said M&A volume would stay strong during 2016, though there will likely not be as many megadeals. He also noted that XPO, whose four-year buying spree has made it the talk of the industry, would be off the acquisition grid next year as it digests the Con-way acquisition.Brad Jacobs, XPO's chairman and CEO, said as much at an industry conference this past fall.
Armstrong also delivered some words of caution for prospective acquirers: A recent survey of 3PL customers found that large providers with $10 billion or more in annual gross revenues—revenues before the costs of purchased transportation—rate lower in customer service, value/pricing competitiveness, and process improvement capabilities than do providers with less than $1 billion in gross revenues. "There is a feeling that very large 3PLs need higher pricing to support their vast organizations and tend to be less proactive in identifying customer process improvements," Armstrong said in an e-mail. He added that service disruptions that often plague post-merger integrations could be a factor in the perception gap between small and large providers.
Armstrong noted that 56 percent of the respondents are trying to shrink their provider universe. "However, reductions due to acquisitions are not an optimal way of selecting your core 3PL group," he said. Armstrong said the continued consolidation among large players will "put more pressure on organizations to properly evaluate and select 3PLs which meet their needs."
About the Author
Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
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