Should There Be Concern About Mergers & Acquisitions in the Trucking Market?
As mergers and acquisitions (M&A) dominate the transportation logistics industry, buyers are speculative about the intended effects. The Journal of Commerce reports that 54 M&A deals were struck in the first quarter of 2015 alone, equaling a total value of $27.2 billion. Many of these acquisitions happen between large companies who are interested in gaining more prominence in the market.
For example, French supply chain operator Geodis SA acquired U.S. Based OHL, which brings 120 US distribution centers, over 36 million square feet of warehouse space, and 8,000 employees. FedEx is also finalizing a deal with 4.8 billion dollar European delivery company TNT, and this is their 2nd acquisition of the year. Other big businesses expanding their operational capacity include UPS, C.H. Robinson, and Stagecoach.
Various factors are contributing to this hot trend. Companies that offer logistics services are constantly looking for ways to provide offerings to more geographical locations so they may expand into new markets and generate additional revenue. Currently, this happens when businesses purchase a competing logistics company in a desired territory. Large companies also recognize that organic growth has been stunted because of tightened regulations and lack of capacity. Businesses seek to grow prominence through purchase power as a result. Analyst of Cowen & Co. Jason Seidl describes this trend clearly: “The M&A market is thriving because it’s still hard to get drivers, and acquisitions are the easiest way for a carrier to grow.”
M&A activity could be troublesome to buyers who experience higher prices because of reduced competition and increasing market share concentration. In some ways this trend is already taking effect. Authorities predict that acquisitions in the intermodal transportation and logistics sectors will create monopolies in approaching years. Two to three companies are predicted to control 50% to 80% of the global market for logistics services according to CEO of XPO Logistics Bradley Jacobs.
The trucking industry should also remain fragmented in the following years. This will be a relief to buyers who are grappling to adjust to the current market change. Smaller trucking companies are starting to move into specialized roles, so the overall number of suppliers is expected to thrive. Competition will continue to remain high and protect buyer power. As it stands, M&As sweep through the market and buyers keep watch for changes that create opportunities.
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