If you read only the headlines, it would be difficult to comprehend the merger and acquisition trends in the transportation and logistics industry in 2022.
Spencer Tenney, president and CEO of Nashville-based transportation and logistics-focused M&A advisory group The Tenney Group, compared it to whiplash during Truckload Carriers Association's recent 2022 Mergers & Acquisitions Recap + 2023 Forecast webinar. The first half of the year, he said, was like the “wild wild west” with extremely low interest rates; exploding demand for transportation services across North America that created pronounced needs to increase supply chain capabilities; and a once-in-a-lifetime increase in the value of used equipment that created opportunities for buyers and sellers to get deals done efficiently.
But then the tide turned. The Fed increased interest rates and a 40-year record-high inflation drove expenses, from driver pay to insurance, through the roof.
“Things began to slow, and people began to change their attitudes about the freight market, about having capital for deals,” Tenney said. “So, especially in Q4, many deals that we were working on, especially the large deals, either went on pause, were delayed and pushed into 2023 (or) just didn't make it.”
Still, a lot of deals got done in 2022, and Tenney said he expects that trend to continue in 2023, though the size and structure of deals will differ, along with a shift in the types of company profiles targeted for acquisition – profiles that were born out of some of the new risks that entered the market specifically in 2022.
Tenney said 2023 is a prime year for small- and medium-sized acquisitions, and while larger M&A deals will occur, he doesn’t expect to see as many. That’s because the cost of capital has increased, and the general position of banks right now is conservative, but he said he doesn’t think interest rates will affect companies’ needs to use M&A as a tool to offset rising expenses, among other things.
“Where we’re going to see some of that evolving in structure is maybe the market for debt becomes less favorable. What we're going to see is buyers and sellers working around that, using assumption of fleet debt, which has better, more favorable terms in the current market, as an instrument to work around and mitigate costs that don't add value to buyers or sellers,” Tenney said. “I think buyers will still be pretty aggressive; they just have to package deals in different ways.
