Armstrong & Associates 3PL Value Creation Summit

Senior bankers from the Harris Williams Transportation & Logistics Group recently participated as panelists in the 2020 Armstrong & Associates 3PL Value Creation Summit.

In this article, we share key excerpts from their respective panel discussions. Jason Bass, a Managing Director, discusses activity levels of financial and strategic buyers, the relationship between company performance through the pandemic and valuations, and specific areas likely to attract buyer attention in the next 18 months.

Jeff Kidd, a Director, explores evolving buyer priorities in the 3PL space, including relative interest in asset-based businesses, and the importance of management teams.

Strategic and Financial Buyer Acquisition Perspectives​


Armstrong: How are macroeconomic trends such as the pandemic, unemployment, economic growth, and political uncertainty weighing into investment decisions?

Bass:  Certainly, all of those factors influence investment committees and decision-making processes for financial investors, as well as boards of directors for strategic buyers—some to a greater degree than others. However, we’ve seen financial investors as well as strategic buyers active in the market before and during the pandemic, and we expect to see both in a robust deal environment in 2021.

This period of disruption, which has been unprecedented, has certainly caused some of the strategic buyers to be a little less aggressive over the last few months. It’s also heightened the need for financial investors to put money to work, as they did not have a market to do that over the better part of 2020. That need becomes more acute as we turn the calendar to 2021 and get past the election season. There will be a lot of great platforms in the market, as well as strong interest in the better-performing assets.  We think that will keep valuations robust.  

Armstrong:  What has been the pandemic’s impact on valuations, particularly regarding what happened to companies in April and May?

Bass: Companies that performed well and were well positioned in their respective markets going into COVID-19, and that are now emerging strong, might be worth even more now than before because of the experience they’ve been put through. I continue to see a bifurcation in the market between the best-in-class companies and others.

Armstrong: Where are you seeing deal flow, and what type of companies are you working with?

Bass: Several areas will be in demand over the next year and a half or so: residential home delivery, omnichannel fulfillment, contract logistics, and managed transportation are just a few of them.  Another area of interest will be temperature-controlled supply chain services, whether in food service, pharmaceuticals, or healthcare—as that expertise has become more and more valued. Also, the ability to bring big solutions such as e-commerce to the small shipper will continue to be valuable. In fact, bringing expertise to smaller shippers across many different capacities in a “productized” way will appeal to buyers.  

Summarizing the M&A Landscape—New Headwinds and Tailwinds


Armstrong: How are strategic and financial investors approaching this market? It seems like activity is picking up.

Kidd: In 2008 and 2009, as well as after the dot-com bubble in 2001, we saw strategic buyers lead us out of the trough. Strategics can be more aggressive due to their deep understanding of how an industry niche performs in times of economic uncertainty. What’s different in today’s environment is the availability of capital for financial buyers. It is far greater than in prior recessions, which is a key driver for this next wave of M&A. There is a significant amount of capital out there looking for too few good opportunities from an investment perspective, and I think we’re going to see healthy competition among both strategic and financial buyers.

However, COVID-19 has obviously affected the process for getting M&A done. People are finding ways to do conferences and conduct due diligence virtually. As an example, we’re seeing Zoom warehouse tours and virtual reality facility tours. Technology is very much allowing us to keep the M&A market moving right now. We’re even having strategic buyers tell us that they’re willing to close a transaction without ever meeting with the team, and without ever going on site.

Of course, that’s an easier thing to do for certain business models. A non-asset logistics business that does all of its work in an office building can be easier to get your arms around without seeing it than an asset-based contract logistics business, for example. But we are very much seeing strategic and financial investors alike be very active in this market. And honestly, it’s more active than we thought it would be six months ago.

Armstrong: Do you think a potential increase in the capital gains tax is worrying dealmakers or motivating them to get deals done this year versus next?

Kidd: A combination of factors has caused the M&A market to come roaring back over the past couple of months. We had companies that were already in the market when activity stopped early in the pandemic. We had clients who were already planning to exit in 2020 just as the pandemic rippled through the economy. We have also seen some deals pulled forward either due to potential tax law changes or to better-than-expected performance through COVID-19.  All of that has created a tremendously busy market over the last six to eight weeks. While things like tax law changes can influence decisions, overall people are not basing decisions to sell their company or to make an acquisition entirely on short-term events.

Armstrong: Are you seeing any increased interest in asset ownership among private equity investors, or are they still primarily non-asset focused?

Kidd: I wouldn’t necessarily say that the financial buyer universe is completely averse to asset ownership. It’s just that buyers have to make sure that they are getting the right return on assets, and a typical private equity investor needs to enter and exit the business within a three- to five-year period. In many cases, the traditional asset ownership model just doesn’t work in this scenario, but there are hybrid models. There are segments of the market where assets are longer lived, or the company is deriving great value from assets and equipment, and financial investors are starting to pay more attention to them. Five to 10 years ago, these buyers wouldn’t touch assets. Some are taking a closer look at this point in the market.

Armstrong: What kind of recommendations would you give 3PL investors going into 2021?

Kidd: Various niches are going to see tremendous growth, including e-commerce, automation, and technology. It could be a technology business, or a people-focused business that uses technology in a smart way to drive efficiencies. We also see a lot of value in industry specialization and owning a particular market versus trying to be all things to all shippers. Any time there is industry expertise and specialization, we think that’s a good place to look.

The 3PL industry is still young. There’s tremendous opportunity as shippers continue to outsource across the supply chain, creating opportunities for aggressive companies to make their mark on the industry. But often it comes down to the people and the managers who are running the business, and not just what space it is operating in. As others have said on this panel, investors are looking to back a management team, not necessarily just buy a company. That’s especially true in an industry like this, where people are critical.

Select Harris Williams 3PL Transactions

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Our Transportation & Logistics (T&L) Group is dedicated to providing superior merger and acquisition advisory services to companies in a variety of attractive niches across the broader transportation, logistics and automotive aftermarket industries. We have deep expertise working with private equity and publicly-owned companies, as well as those owned by families and entrepreneurs.

We have extensive transaction experience within a variety of specialized, niche transportation segments, ranging from third-party logistics to air, marine and rail product and service. We are a national leader in the automotive aftermarket, where our experience spans manufacturers, distributors, service providers, branded products and retailers. We understand the dynamics and trends that create opportunities for companies in these sectors, and apply this expertise to generate superior outcomes for our clients.

Published November 2020

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