Trucks for Sale
Since the middle of 2020, North American trucking companies have been being bought at an astonishing rate. Call it a sell off, an industry consolidation or simply a pay day for trucking companies surviving COVID-19, the end result is the trucking landscape is being reshaped and reshaped quickly. How long will the snatching up of assets continue? At this stage, it is anybody’s guess. Sure, there are a number of obvious contributing reasons for willing sellers and even more willing buyers. From a big picture perspective, low interest rates, pent up capital looking for an investment home, a rebounding economy, and a strong demand for trucking, are providing fertile ground for trucking industry M&A (Mergers & Acquisitions).
Bridgepoint Investment Banking, a firm that specializes in M&A, in their Trucking & Logistics M&A Quarterly Update for the third quarter of 2021, wrote: “We are bullish on the M&A market for the Trucking and Logistics industry in mid-2021 and heading into 2022. The impact of the anticipated tax policy changes are real and perceptible. While a few tell us that they believe these changes will not occur, the vast majority are planning for this eventuality. Many founder-led and family-owned company owners are seriously considering whether the time is right for an ownership transition.”
Deal Makers Open the Door
No doubt the climate in DC and the booming demand for trucking services has had an influence on the increasingly rapid pace of trucking M&As, but this round of trucking industry acquisitions is different from those in the past. There is an all-inclusiveness to this consolidation cycle – the acquisition targets aren’t segment specific and includes everything from Mom and Pop operations to Uber Freight’s (subsidiary of Uber Technology) $2.5 billion acquisition of Transplace, a 3PL owned by TPG Capital.
It’s easy to argue that the aforementioned deal isn’t really a “trucking” M&A. Neither Uber Freight nor Transplace are really “trucking” companies [both companies were excluded from AJOT’s Top 100 North American Trucking Companies], but as Transplace’s own tag line notes, they are “technology companies” involved in trucking. And certainly many, if not most, 3PL transport operations are “asset light” with few wheels on the ground. But semantics aside, trucking, taken in the context of the wider field of logistics, has become a prime target for institutional investment.
Fitch Ratings in a December 8th report outlined the current risk and reward conditions for investment in the sector: “Trucking fleets are experiencing heightened demand pressure from ongoing global supply chain issues, US inland transportation backlogs and labor issues. However, trucking fleet operators’ financial health remains resilient, leading to low default rates and stable transportation-backed ABS [Asset-Based Securities] performance.” Fitch added that the limited supply of “Class 8 heavy duty trucks and trailers (chassis) cause increased asset values, driving up recovery rates within ABS transactions.”
Uber Freight’s purchase of Transplace wasn’t the only blockbuster acquisition during 2021. In January, Montreal-based (10 on the list)TFI International Inc, in something of an unexpected move, announced that it had signed a deal to acquire UPS Freight, the less-than-truckload (LTL) and dedicated truckload (TL) divisions of (UPS) United Parcel Service, Inc, for US$800 million. Approximately 90% of the acquired business will operate independently within TFI International’s LTL business segment under its new name, “TForce Freight”, while acquired dedicated TL assets will join TFI’s TL business segment. The move instanteously gave TFI an enormous strategic footprint that links Mexico, the U.S. and Canada. In November, TFL followed up the massive UPS deal with an acquisition of D&D Sexton, a Carthage, Missouri based carrier specializing in refrigerated transportation.
Strategic Acquisitions Pave the Way to Growth
Although the overall financial climate is an important aspect of the current M&A run, the motivation behind each individual transaction varies considerably.
For example, in early January, (25) RoadOne IntermodaLogistics, based in Randolph, Massachusetts, acquired DDI Transportation, followed in February by the purchase of JZ Expedited and in September with the acquisition of Rose Logistics. The additions – a better description of the companies working under the RoadOne umbrella of brands, as the new name Rose IntermodaLogistics implies – are part of an overarching strategy of RoadOne of strategic expansion via acquisition.
In RoadOne’s case, back in January of 2019, Nonantum Capital Partners announced it was “partnering with founders Ken Kellaway and David McLaughlin to recapitalize RoadOne IntermodalLogistics, the leading asset-light, independent intermodal drayage provider in North America.” As the recent acquisitions attest, the timing was good for RoadOne to “recapitalize” to take advantage of trucking’s bull market run. Although the primary reason for RoadOne’s acquisitions is to expand the company’s service portfolio, a secondary issue driving asset-heavy trucking acquisitions is the driver shortage. As Kellaway commented at the time of the Rose Logistics deal: “In drayage, the market is experiencing significant driver shortage issues due to the major challenges at ports and ramps nationwide.”
The M&A strategy for many trucking companies is not only to acquire rolling stock assets but to build their logistics services. In September, the trucking (14) ArcBest (the holding company for the better-known ABF Freight) acquired Chicago-based truckload broker MoLo Solutions. The key reason for the acquisition was to expand asset light operations – to keep the asset light side of company business in balance with the asset heavy trucking interest.
Other M&As involve bolstering a number of divisions simultaneously with one strategic acquisition. Take the recent example of (11) Ryder Solution’s acquisition of Whiplash. Ryder, announced on December 13th the company had signed an agreement to buy Whiplash, a provider of omnichannel fulfillment and logistics services, for approximately $480 million. Whiplash, based in City of Industry, California, offers scalable e-commerce and omnichannel fulfillment solutions to clients. The company also has 19 dedicated and multi-client warehouses totaling nearly seven million square feet and providing access to key port operations and gateway markets. For Ryder the acquisition boosts their e-commerce capabilities while also adding a large client list – Whiplash handles some 250 brands – and a sizeable warehouse footprint located near major ports and gateways markets.
Bigfoot: Widening the Corporate Footprint
Although many of the acquisitions of 2020/2021 were aimed at expanding the asset light service side of the business some were clearly aimed at building up sector coverages and expanding the corporate footprint.
Such is the case with (16) Penske’s and (5) Knight-Swift’s recent deals.
In December, Penske Truck Leasing, the leasing arm of Penske Logistics, announced it had reached an agreement to acquire the assets of DeCarolis Truck Rental Inc. DeCarolis Truck Rental is a family-owned company headquartered in Rochester, NY DeCarolis Truck Rental provide truck leasing, rental, maintenance and repair services to the food processing and distribution, consumer distribution and freight hauling industries. The acquisition immediately added around 2,350 units to Penske’s fleet and boosted the company’s coverage of the food and beverage sector. The DeCarolis purchase comes almost exactly a year after Penske’s completion of the acquisition of privately held Chicago-based Black Horse Carriers in 2020. Like with other providers, Penske’s purchases have helped bolster the strategic needs within the company’s portfolio of services.
Like Penske, Phoenix Arizona-based Knight-Swift also dipped into the M&A waters in a big way in 2021. In July 2021 the company announced it had acquired LTL carrier AAA Cooper for $1.35 billion. AAA Cooper added approximately 70 facilities (90% owned), consisting of a terminal door count of over 3,400, strategically located across the Southeastern and Midwestern United States, with a fleet of nearly 3,000 tractors and 7,000 trailers. More importantly, the move represented a significant foray into the LTL market. In the release following the announcement, Knight-Swift said it had three main requirements for acquiring its first LTL operation: The company needed to have significant market share, be profitable and have management depth to operate independently and maintain a good company culture. Knight-Swift CEO Dave Jackson, said in the statement, “We were excited to have identified AAA Cooper as a partner that meets all three requirements…This transaction firmly positions us as a meaningful player in the LTL space, where we intend to grow both organically and through future acquisitions.”
The comment “future acquisitions”, was telling as in December, Knight-Swift bought MME Holdings, the holding company for another well-known LTL carrier, Midwest Motor Express for $150 million. Besides a “blue-chip customer list” the MME acquisition adds a network of over 30 service centers with a door count of approximately 800, located across the upper Midwestern and great Northwestern U.S. and adds a fleet of approximately 460 tractors and 930 trailers.
The LTL sector has experienced enormous expansion over the past two years and as the above cases show, M&A has been a favored tool of growth by many trucking companies in the LTL space. (27)Forward Air is no different. In November, the Greenefield, Tennessee-based LTL specialist announced it was purchasing the assets of BarOle Trucking Inc. and the trucking related assets of TKI Intermodal. According to the release: “These acquisitions represent continued execution of Forward’s roll-up strategy in Intermodal, which began in 2014 with the acquisition of Central States Trucking. Both acquisitions will provide Forward with additional capacity and resources to meet current customer demands in the intermodal market and extend Forward’s service footprint in the Minneapolis–Saint Paul, Minnesota area. The acquisition of BarOle will also provide a larger terminal location, allowing for further expansion in the future.” Perhaps one of the understated features of the deal is the 95 drivers it adds – a quadrupling of Forward’s total number of drivers in the Minneapolis Intermodal market.
When Will the Run End?
The conditions underlining trucking M&A in 2021, namely strong demand for trucking services, a labor shortage particularly among truck drivers, low interest rates and capital looking for investment opportunities added to the financial conditions is the overall shift in the trucking industry – a consolidation of privately held businesses into larger better capitalized entities. This also matches a trend towards more trucking companies adding asset light services and technology. While 2022, may not see as robust M&A activity as the current year, it is movement unlikely to significantly slow in the near term.