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3PL recap: COVID performance makes M&A valuations difficult

This fireside chat recap is from FreightWaves’ 3PL Summit.

FIRESIDE CHAT TOPIC: Mergers and acquisitions in the 3PL world.

SPEAKER: Chris Wofford is the managing director of Wofford Advisors.

BIO: Wofford founded his boutique strategic consulting firm focused on mergers and acquisitions in the supply chain arena in 2021. He previously headed the transportation and supply chain group at Wells Fargo. He spent many years as an M&A banker before focusing on the freight and logistics industry. He has executed over $120 billion of buyside and sellside M&A assignments, including numerous cross-border transactions.

KEY QUOTES FROM WOFFORD:

“This is one of the hottest markets we’ve seen for selling 3PLs in recent memory. We obviously have some headwinds that we’re experiencing: inflation, what’s happening with Russia and Ukraine, and geopolitics broadly. And those issues absolutely manifest in business models. The certainty of cash flows, the certainty of entrance and exit, the certainty of closing when deals can be subject to CFIUS [U.S. government national security] review and things of that nature. But the real issue that buyers and sellers are struggling with the most is how much of a COVID bump did business models experience and how much of those supply and demand shifts or changes in behavior are here to stay.”

“Truckload brokerage is probably one of the hardest markets right now to get your hands around because there are these fundamental questions going around, including autonomous vehicles. So I think we’re in a really difficult time period for valuing companies and that obviously leads to increased discrepancies between buyer and seller expectations. But, for sure, in 2021 we saw an incredibly robust market environment.”

“We’ve seen a cycle where financial buyers have been exiting in two-and-a-half to three years because the growth curve has been that dramatic. But in this environment, strategic buyers have a bit of an advantage over sponsors, where last year it was a bit of the inverse. The reason for that is that this intrinsic value concept can enable a strategic to pay a multiple that otherwise might look daunting whereas if a sponsor is mistiming their entry into the marketplace at a time when they’re buying peak EBITDA and then there’s a subsequant trough, they’re going to get hurt.”

“What we’ve seen over time is that specialization has turned into broadening. Why? It’s because of capitalizing on the customer. The hardest thing to obtain is the opportunity to sell to that customer with a viable solution set. Unquestionably we’ll see increased bundling. … What we’re seeing is to own that customer relationship you need to do more end-to-end and deeper.”