For M&A investors, 2021 will be a year to remember. How will 2022 stack up? As we head into the new year, Harris Williams Industry Group Heads share their views on which trends will drive growth, key investor considerations, and the opportunities to be found in each of the industries we cover. We look forward to pursuing these opportunities in partnership with our clients in the months to come.
How do you feel about M&A conditions heading into 2022 within your industry?
Following a record-setting year of M&A activity within T&L, the fundamentals remain healthy for 3PLs and the auto aftermarket. Many investors are attracted to the 3PL space, and there are some excellent companies in growth mode, creating opportunities to put that capital to work. Plus, the supply chain continues to generate challenges for shippers and consumers that the best 3PLs will help solve, supporting long-term growth.
In terms of automotive aftermarket products and services, conditions remain favorable. The supply chain shortage has obviously forced car manufacturers to cut production. The net effect is longer lives for cars already on the road and a booming used car market, both of which result in strong demand for aftermarket products and services. And as with 3PLs, investors continue to see the value in this cycle-resistant, largely nondiscretionary subsector.
What should M&A investors keep top-of-mind in your industry this year?
While investors should continue to believe in the fundamentals of the T&L sector, they probably shouldn’t expect a repeat of record-shattering 2021. For 3PLs in particular, valuation multiples and transaction size reached record levels, so we may start to see multiples level out and deals might get smaller, allowing more buyers to compete.
In the aftermarket, there’s ongoing investor interest in consolidating the fragmented car wash and collision sectors. Investors are also finding growth opportunities in subsectors like dealership services, financial services, and the wholesale market.
Name a few of the most significant trends that will drive growth in your industry in 2022.
At a high level, the pandemic has caused many companies to rethink their supply chains. The paradigm of extended supply chains that tap into low-cost labor is not as universally popular as it was pre-COVID-19. Now, many companies are focused on near-shoring and shrinking their supply chains for the sake of stability and predictability. That’s sparking growth in manufacturing, warehousing, and distribution closer to major consumer markets, like the U.S.
In many cases, companies are starting to shift from “Just in Time” to “Just in Case” inventory management practices, which will drive demand for supply chain services as shippers restock and establish new inventory reserve levels. These trends, plus the ongoing driver shortage and tight capacity across all modes, benefit those 3PLs that can deliver high service levels.
Closely related is the trend toward faster delivery, whether same-day or even within an hour. That will spur growth across the last mile of the supply chain: delivery services, hyper-localized distribution centers, drivers, and others. Supply chain challenges also have had significant positive impacts on the auto aftermarket. The slowdown in new car manufacturing is pushing people to keep their cars longer, which boosts demand for aftermarket parts and services. Aftermarket companies generally have very resilient business models that thrive even when other sectors are challenged.
How has your team delivered exceptional client service in this busy market?
We’ve been very thoughtful about our go-to-market strategies. How do you get buyer attention in this very crowded and busy market? How do you help buyers see their potential angles on a deal?
It’s never been more important to truly listen to both clients and buyers. They have very limited time and bandwidth given the current activity levels in the market, so it’s critical that we understand their goals and concerns deeply, and pivot accordingly. It’s challenging but also very exciting and satisfying.
The Harris Williams Transportation & Logistics Group serves companies in a broad range of attractive niches, including third-party logistics (3PL), automotive and heavy-duty vehicle, transportation equipment, and truck, rail, marine and air transportation. For more information on the firm’s T&L Group and other recent transactions, visit the T&L Group’s section of the Harris Williams website.
To learn more, please contact our senior bankers.