Season 2, Episode 5: M&A In Transportation & Logistics
In this episode our hosts Bain and Perlmutter chat with a special guest from Metafora… JT Engstorm, our VP of Strategy and Corporate Development. He outlines some of the main challenges of the M&A process. This process it’s so much more than the transaction, it's about finding the best match, where are the best synergies and who's the best partner.
“Honestly, everything excited me about M&A. I love the rush of a deal.” - JT
Listen now:
Unique Challenges that arise in the M&A lifecycle:
- When working on a contentious deal: prior to the deal closing, parties are on opposite sides, understanding that once the deal is complete, these same parties will be on the same side.
- When a multi generational family owned company is considering M&A.
“It’s all so circumstantial, depending on the reason for entering into an event. For example a scenario where companies are performing really well and they are looking for growth capital or an equity event or bring on an investor for growth purposes. The other side is if you have an underperforming asset and you need to take on capital for sustainability purposes or you need to divest assets to raise cash. These two circumstances are very different and the deal dynamics create different worlds of thought process.” - JT
How do you qualify what companies would be a good fit to merge with or for acquisition?
You want to consider:
- What’s your target market?
- Is your M&A goal strategic or financial?
- How well capitalized is the potential acquirer?
- What are their goals post transaction?
- With a merger, what is business and company culture going to be like post merger?
What are considerations companies need to make when looking to acquire or be acquired?
If you’re buying:
- You want to find an asset that's a good investment. Ideally there is a strategic rationale above hitting performance targets. Ideally the asset also has a leadership team that aligns with your future goal of ownership of the business.
If you’re selling:
- One goal would be maximizing valuation.
- You want to find the right home. Make sure your company will transition to the right people.
- Ensure appropriate ongoing financial incentives
Keep in mind: A lot of executives don't pay themselves through cash comp. They're taking distributions off the business. So when they transfer ownership, they need to be conscious of what the financial implications are on an ongoing basis so they can be appropriately incentivized to keep doing what they're doing.
How can a company reduce risk when buying or selling?
- Do a quality of earnings. You want to really deeply understand the financials of the business.
- Have strong legal counsel.
- Do an assessment of talent.
- Consider what could be done by a third party?
- Minimize access to your business: You’re only going to end up with 1 or 0 buyers. If you have 50 potential buyers, cool, but 49 of them are not going to buy you, and they go right back to being your competitor in the marketplace. This is more relevant to a seller.It is a strategic risk when you have a potential competitor considering a buy and thus having access to your proprietary information.
Ok, so you’ve merged or acquired. Now what?
After being merged or acquired, then the real work starts for the operators. They need to have a management and operating plan: who's going to be doing what. The business building doesn't stop, it's just entering a new phase.
How would you define a “successful” merger or acquisition?
The shortest term KPI is raw valuation. Then the longer term answer is derived from: What’s the post transaction growth trajectory? What are the synergies derived from the deal?
To understand what your adjusted purchase price multiple was, you have to retroactively look at financials on a trailing 12 or 24 month basis. Then ask yourself: How much value has the acquisition has created for the enterprise?
On the highest macro level, the metrics you want to look at are:
- Arbitrage on the deal
- Growth and cash flow and/or growth and equity
How has M&A impacted the transportation space over the last 10 years?
M&A has impacted the transportation space over the last 10 years as it has been a component of a lot of the biggest companies in our industry.
As a buyer, in a flat or deflationary market, if you're looking at a merger of two truck lines you would look at asset utilization, empty mile percentage, equipment, purchasing, economies of scale, elements surrounding the driver, etc.
For a brokerage operation, you don't own any assets, so when looking at utilization it’s very different. Here you’re looking at transactions per broker per day, gross margin spread, average take down, capital intensity including tech spend and other elements of the business structure.
Metafora’s new M&A practice
Presently Metafora is doing a lot of due diligence support for companies that are trying to move fast. Making sure they have the appropriate intellectual capital and labor to get things done.
We also participate in deal sourcing and support of a pipeline buildout.
We have a lot of relationships in the space which are helpful for building out a deal swat team.
We give very objective holistic advice, so you can eliminate the risk of a biased response from someone who is trying to sell.
Learn more about Metafora’s M&A service offerings here.
Are you considering buying or selling a company? Do you want to overcome the obstacles of your M&A lifecycle? Are you curious if your strategy is making a positive impact? Do you want to know more about your company's strengths in terms of M&A? We can help you out!
Request a free discovery call here to learn more!
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