Acquisitions should target more than just additional customers, 3PLs told

| Jun 16, 2014 3:58PM EDT
The average logistics merger or acquisition deal was $44 million in 2013, compared with $125 million in 2012.

CHICAGO — Third-party logistics providers looking to acquire other firms should focus on what capabilities the deal will bring, rather than just gaining customers inorganically.

Gaining new customers via acquisitions isn’t necessarily a bad idea, but 3PLs need to show investors they can expand organically and the deals give them a geographic or business capability they didn’t have. Executives’ advice to attendees of the Eye for Transport conference in Chicago comes as merger and acquisition activity in the 3PL sector is accelerating, Laurent Guerard, partner and head of A.T. Kearney’s Global Transportation Practice said last week. But the average size of each transaction is falling; the average deal last year was $44 million, compared with $125 million in 2012, he said. Sellers haven’t been engaged as they were during the recession and in the early years of the recovery, Mitchell Glickman, vice president of corporate development at Livingston International, said.

“There were a lot of folks who came out the other end but decided to play more golf,” he said.

Mergers and acquisitions give 3PLs the ability to generally increase business and enter new markets faster than via organic growth, he said. Customers can benefit from an expanded suite of services, potentially lower prices due to economies of scale, and, perhaps, even the ability to narrow their provider pool. M&A activity doesn’t always help customers, though. Bad implementation can lead to service failure and distract management from delivering to customers.

“If you want to accelerate growth in a short period of time, acquisitions tend to be pretty productive because you can buy a lot of customers,” Glickman said. “It also helps you build scale and capabilities included.”

But it isn’t just about gaining new customers; it’s about using acquisitions to take the company where it wants to be, he said.  Livingston International, then a customs broker with limited reach outside of Canada, was able to gain air-sea freight capabilities, increase its U.S. freight forwarder footprint and get into the growing U.S-Mexico cross-border market through a string of acquisitions. But after a buying spree in the late 1990s and 2000s, investors told private equity-backed Livingstone to stop buying and grow organically.

Acquisitions don’t necessarily guarantee additional customers, either. Ryder System has seen customers from acquired companies migrate away following the deals, Todd Skiles, senior vice president of sales, said.

“The problem we’ve run into when acquiring for growth is simply that many of the customers of the folks we acquire didn’t want to do business with a Fortune 500 company. They specifically chose to not do business with a company like Ryder,” he said.

That’s partly why Ryder has had better success with growing organically, and when it does make acquisitions, it does so to gain new capabilities, Skiles said.

“Our customers are actually demanding that we challenge them with what’s new in the market,” he said. ”We look at acquisitions as a way to do that.”

Contact Mark Szakonyi at mszakonyi@joc.com and follow him on Twitter: @szakonyi_joc.