While the covid-19 pandemic negatively impacted many industries both immediately and long term, the supply-chain industry saw an initial surge in profitability that only began to decline this year. In fact, for many supply-chain companies and logistics occupiers, 2022 was their best year ever.
Spikes in freight volumes and transportation service rates during the pandemic created the perfect environment for companies in the logistics sector to thrive.
However, freight market volumes fell alongside consumer spending over the past year, followed by a decrease in service rates, leading to much narrower profit margins in the space.
Current market dynamics and high interest rates have added complexity to mergers and acquisitions in the transportation and logistics industry, a trend that will likely persist at least until the freight market rebounds.
Left Lane Associates works exclusively on transactions in the supply-chain industry as an M&A advisory firm. The banking team that supported the M&A strategy of dozens of supply-chain companies across the US and Canada last year has decades of combined corporate finance and logistics experience, and has shared some key findings for supply-chain dealmakers approaching the market in 2024.
In the latter half of 2023, dealmakers remained cautious. While buyers and lenders have always required detailed due diligence, metrics such as changes in price and volume between the pre-pandemic period and today are receiving more attention. Buyers now delve into more detailed load-level data that provides insights into how changes in price and volume contribute to profit. Sellers unable to provide robust and detailed data may face disadvantages in the negotiation process.
Financial results are typically evaluated on a trailing 12-month (TTM) basis, and with the strong performance of 2022 dropping off at the close of 2023, buyers are requesting a more robust dataset.
Resilient relationships
However, it is not all bad news for companies with dropping revenues in 2023. Buyers and lenders have shown greater confidence in funding transactions where, despite a decline in performance on a TTM basis over the 2023 fiscal year, there exists a consistent rebound in recent months. The sellers that have seen the most success can demonstrate that rates have stabilized while volumes are increasing month over month.
Beyond the numbers, dealmakers in the supply-chain industry are keenly analyzing strength and tenure of customer relationships and their end markets – favoring end markets that typically perform well in a downturn. Where relationships are concerned, contracts hold significant weight.
However, buyers are placing confidence in long-term relationships where the seller’s service offerings are deeply integrated into the customer’s supply chain.
With continued economic uncertainty in the supply-chain space, sellers should be prepared to speak to their customer relationships and outlook, continue to track their data at a granular level, and anticipate a deeper dive during due diligence for successful deal closures in 2024.
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