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Technology-focused companies supporting the trucking and logistics industry have experienced an increase in merger and acquisition activity.
Freight transportation is supported by numerous technologies from fleet management, telematics, transportation management, digital freight reconciliation and warehouse management. Providers of these services are numerous and fragmented, as are the companies they serve. Also, just like with their customers, there is a lot of consolidation taking place.
“We’ve seen mergers and acquisitions follow that trend that we’ve seen in the broader transportation industry,” Jonathan Britva, a director at investment bank Republic Partners, told Transport Topics. “Businesses [are] buy other technology vendors to fill gaps in their service segments to become more of a one-stop solution for businesses in this space, to provide multiple technology products to serve multiple modes.”
Tenney Group CEO Spencer Tenney noted that transportation software companies that are part of the digital transformation must do their best to meet a great need. They need revenue, expanded capabilities and talent to be more attractive to customers given the competitiveness of the space.
“Those three things I see as some of the themes that are driving some of these more technology and software type M&A trends,” Tenney said. “Every day it seems like there is a new technology, so there has to be something to differentiate. And I think people who want to win the future need to have volume, and they need to be nimble through their sales force, they need to offer a variety of different offerings within their portfolio, and they need to lead with the talent.”
Capstone Partners released a report on June 15 that found M&A activity in the automotive technology and transportation software industry to set a record in 2021. The Automotive Technology (AutoTech) & Transportation Software Market Update of May 2022 documented 512 transactions completed in the past years have been announced or completed. That compares to the annual average of 350 deals between 2018 and 2020.
“M&A activity remained quite strong in the first quarter of 2022,” Capstone Managing Director David Michaels said in a statement, “although valuation multiples appear to be contracting somewhat from their peaks, which is consistent with the broader correction taking place in public markets. ”
The report found that transportation management software saw the second most deals in the past year with 115. It was only beaten by ride-sharing and booking apps. Telematics saw 46 deals, supply chain software saw 39 deals and warehouse management software saw 25 deals.
Capstone Partners AutoTech Transportation Software MA Coverage Report May 2022 by Transport Topics on Scribd
“Tech companies serving the transportation logistics segment look at acquisitions in the same way that actual transportation providers do,” said Republic Partners’ Britva. “Do I have a gap in my service offering that I need to fill that will allow me to sell more services to my existing customers or add new ones? And so I think those companies are looking at an acquisition like a transportation company or a 3PL would.”
Evan Armstrong, president of Armstrong & Associates, noted that most of the third-party logistics business comes from private equity firms. There have always been 3PLs that other companies bought into their own space. They don’t tend to pursue tech-focused companies, but it does happen.
“A lot of it comes down to what investment companies are targeting,” Armstrong said. “And a lot of them focus on technology, and where that focus is on technology, there’s usually a lot of interest in investing in different apps. They view digital freight brokers like Convoy differently than CH Robinson.”
Tenney noted that companies that expect to be competitive through revenue, expanded capabilities and talent are likely to see acquisitions as one of the best approaches. But it is also about finding the right companies to acquire, such as companies with complementary processes and services.
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“So, if you buy complementary-type software technology, it just enhances your ability as a team to be more efficient,” Tenney said. “Then the cross-selling elements. If you have certain things, customer bases that are complementary between the companies, I think that’s another thing that drives some of these transactions.”
Tenney also pointed out that the decision on which software to use should be clear to end users. He noted that these technologies become more attractive the more they consolidate. Given these trends, he expects more M&A activity in the future.
“I think it’s very hard to do unless you get the volume of clients and the capital to make it happen,” Tenney said. “There you combine talent, abilities and all these things. I think it provides a much better formula for these tech companies to win the future. If they try to do it alone, it’s just really hard because the technology is evolving so fast.”
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