Dealtalk: U.S. truck firms accelerate into the merging lane

Covenant Logistics

06/11/2017 12:00

(For more Reuters DEALTALKS, click on  DEALTALK/ ) 
    By Eric M. Johnson and Nick Carey 
    Nov 6 - The consolidation of the U.S. trucking industry is 
picking up speed, with big trucking companies and private equity 
funds scooping up smaller firms as a U.S. regulatory mandate is 
set to go into effect and as drivers push for higher wages.  
    There have been 44 publicly announced freight movement and 
logistics deals within the U.S. so far this year, according to 
Thomson Reuters data, already topping the 38 deals announced in 
2016. And the total is likely much higher because most deals are 
private, said Todd McMahon, managing director at investment bank 
Capstone Partners. 
    Trucking companies by late December must start using 
electronic logging devices, known as ELDs, to track the number 
of hours drivers are behind the wheel.  
    The new mandate makes it harder for trucking firms to dodge 
federal limits on the hours drivers can work and will likely cut 
into productivity, trucking industry officials have said. That 
would pressure already razor-thin margins at smaller trucking 
firms, fueling consolidation.  urn:newsml:reuters.com:*:nL2N1C212G 
    Executives at larger trucking companies and private equity 
firms have said they are aggressively hunting for deals.  
    And the trucking industry is recovering after a tough few 
years, making struggling firms more likely to sell, Dan Clark, 
transportation finance head at BMO Harris Bank, the largest U.S. 
truck-financing arm. 
    XPO Logistics Inc  XPO.N  Chief Executive Officer Brad 
Jacobs said last week the company has a war chest of up to $8 
billion for possible deals in the coming months, and has 
narrowed its target list to dozens of companies.  urn:newsml:reuters.com:*:nL2N1N725V 
    XPO has used rapid-fire acquisitions to grow from a small 
truck brokerage into a diversified company. In a 2015 buying 
spree of roughly $6.5 billion, it snagged trucking and logistics 
firm Con-way for $3 billion as well as France's Norbert 
Dentressangle for $3.53 billion.  urn:newsml:reuters.com:*:nL4N1KO59Q 
    Scott Wheeler, chief financial officer at Daseke Inc 
 DSKE.O , which hauls industrial equipment for customers like 
Caterpillar  CAT.N  and Deere & Co  DE.N  on flatbed and 
specialized trailers, said acquisitions will fuel the company's 
rapid growth.  
    Daseke, with a market value of $597 million, has closed four 
deals in 2017 with more due before year-end.  
    "There is so much opportunity," said Wheeler, whose finance 
team is evaluating numerous merger targets with well-managed 
fleets and revenue of $40 million to $250 million. 
    Daseke is the largest carrier in the $133 billion open-deck 
and specialized trucking niche, yet still has less than one 
percent of this fragmented market.  
    In August, Green Bay, Wisconsin-based Schneider National Inc 
 SNDR.N  told analysts the company plans to focus on "specialty 
areas" for acquisitions.  
    Echo Global Logistics  ECHO.O , with a market value of $664 
million, has an "active pipeline" of so-called tuck-in deals 
aimed at strengthening a particular division that they are 
working on, CEO Douglas Waggoner told investors. 
    Financial data provider Preqin said year-to-date North 
American fundraising for private equity funds that include 
logistics as part of a wider focus has hit $11.6 billion, 
compared to $7.5 billion for all of 2016. The top funds in that 
sector either declined to comment or did not respond to requests 
for comment on their investment plans. 
         
    FLURRY OF ACTIVITY 
    The biggest deal so far this year was the merger of Swift 
Transportation Co, the sixth-largest U.S. trucking company, and 
Knight Transportation Inc  KNX.N , the 23rd-largest, creating 
the biggest truckload operator in North America with a combined 
market value of more than $5 billion.  L3N1HI3S9   
    "The big are getting bigger and then, with Knight-Swift, 
that's the big-big getting huge," said Jeff Sass, senior vice 
president at truckmaker Navistar International Corp  NAV.N . 
    For a FACTBOX on major deals this year see:  urn:newsml:reuters.com:*:nL2N1N90Z2 
    Industry executives say the electronic log rules give big 
trucking companies who already use electronic logs a stronger 
hand in the market. 
    Companies like Schneider and Covenant Transportation Group 
Inc  CVTI.O , which provides long-haul services, have used 
electronic logs for years and backed the rule. But the mandate 
could sap productivity by 3 percent to 15 percent, according to 
industry estimates. 
    Trucking firms have also had to raise driver pay as they 
struggle to attract and retain drivers amid a general driver 
shortage and tight U.S. labor markets, which has also pressured 
margins.  
    In addition, many owners of family-owned truck firms that 
launched following industry deregulation, which reduced 
government controls on trucking rates and routes from 1980, have 
hit or are approaching retirement age with children pursuing  
different careers.  
    For many, their options are sell out, or shut down. 
    "It's (the pace of acquisitions) been as busy as we've seen 
it since we started the business 13 years ago," said Jim Parham, 
managing partner Florida-based M&A advisory firm Transport 
Capital Partners.  
    "We expect this pace to continue, if not accelerate, in the 
coming months," Parham said.  
    Parham hopes to close four deals between firms with revenue 
of between $10 million to $250 million in the coming weeks but 
declined to provide specifics.  
    In February, Parham helped less-than-truckload carrier 
Central Freight Lines buy Wilson Trucking Corp out of Waco, 
Texas, another LTL carrier, to expand into the U.S. Southeast. 
LTL carriers consolidate smaller freight loads onto a single 
truck. 
               
    QUALITY AN ISSUE 
    Some privately held carriers are focused on building out 
their own fleet rather than buying other firms.  
    Brad Pinchuk, CEO of Dubuque, Iowa-based Hirschbach Motor 
Lines, said finding companies to buy that match his modern fleet 
and low annual driver turnover is tough. He has pursued 
aggressive expansion, nearly tripling his fleet since 2013 to 
around 1,100 trucks. 
    Pinchuk says the outlook for family-owned truck firms is 
bleak because major customers want a handful of big suppliers. 
    "Our big customers are getting bigger and they are doing 
business with fewer transportation providers," Pinchuk said. 
"That makes it pretty darn tough for a small guy to do business 
directly with a large shipper."     
    Certain niche, higher-margin truckers may be targeted by 
private equity firms, said Capstone's McMahon.  
    For example, Magnate Worldwide, a joint venture between 
private equity firms CIVC Partners LP and Magnate Capital 
Partners, acquired New York-based fine art shipper Masterpiece 
International in April for an undisclosed sum. 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
FACTBOX: Major mergers and acquisitions in U.S. trucking sector  
    urn:newsml:reuters.com:*:nL2N1N90Z2 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> 
 (Reporting by Eric M. Johnson in Seattle and Nick Carey in 
Detroit; Editing by Meredith Mazzilli) 
 ((Eric.m.johnson@thomsonreuters.com; +1 206 707 1218; Follow me 
on Twitter @ByEricJohnson; Reuters Messaging: 
Eric.M.Johnson.thomsonreuters.com@reuters.net)) 
 
Keywords: USA TRUCKING/M&A