Based on sheer deal volume, last year was a record year for supply chain M&A. According to industry specialists Left Lane Associates, there were 53 announced deals that involved Canadian companies in 2021. This doesn’t include all the private deals that went unannounced.
Leading the charge were serial buyers TFI International, which closed six deals, followed by Mullen Group with five, and Canada Cartage with four. Other multiple buyers included Kriska, Andlauer Health Care and Manitoulin.
M&A activity has been robust in recent years but the reasons are shifting.
Prior to the pandemic, buyers wanted customers and geographical scale. Today, most carriers have more customers than they know what to do with. They’re looking for truck drivers, equipment, and access to niche services like Final Mile.
I expect the uptick in M&A activity to continue this year. Here are some of the factors driving deals right now.
Real estate
According to my pal Austin Cook from Colliers International, Canadian cities have the lowest warehouse vacancy rates in North America at less than 0.7%. The situation is getting worse, given the need for e-commerce fulfilment space, lack of materials for new builds, and municipalities moving at a snail’s pace to review permit applications.
Buyers are finding that one of the best ways to grow their real estate footprint is to acquire another trucker, and sellers are motivated to cash in on real estate values that often exceed the value of their business.
Shippers in the game
The pandemic forced shippers to examine their relationship with the supply chain and how they manage uncertainty around rates and available capacity.
Some are taking matters into their own hands.
Agricultural conglomerate James Richardson & Son’s purchase of their Winnipeg neighbour Bison Transport last January was a sign of things to come.
U.S.-based lifestyle retailer American Eagle Outfitters bought Quiet Logistics for a tidy $350 million, while Ashley Furniture bought Wilson Logistics and their 3,000 pieces of equipment.
Expect more shippers to get into the game.
Evolving terms
Last year can broadly be said to have been a seller’s market, with valuations pushed to the high end of their ranges. However, much of the middle-market activity has shifted to what constitutes standard terms.
Middle-market buyers are increasingly hesitant with paying a majority at close. Concerns about post-transaction loss of customers have led to increased earn-outs, hold-backs and vendor financing. Buyers are also using longer-term averages to smooth EBITDA volatility when applying higher multipliers.
Then there’s a driver factor. More buyers are tying driver retention into their earn-out terms. They are scrutinizing proof-of-equipment and CapEx to justify the insane asset values.
Always a fertile ground in negotiations, normalizations have become even more of a talking point.
Buyers want to know how Covid and broader supply chain bottlenecks influenced a seller’s historical results and projections. Common themes include the reversal of subsidies from federal grants, identifying customers that will not return post-Covid, and understanding of the impact of spiking spot-market prices on revenues.
No Driver Inc.
Looking at last year’s deals, one thing stands out like a sore thumb: Driver Inc. carriers are not in the M&A game. That’s no surprise. Most buyers are explicit in that they have *zero* interest in any fleet that has even a single driver participating in the scam.
On the sell side, M&A advisors like Left Lane Associates won’t consider taking Driver Inc. fleets to market. It’s going to be interesting to see how this plays out as CRA appears to be tightening the noose on these operations.
Full steam ahead
Supply chain constraints are one of the main causes of our surging inflation. In order to combat that in early March the Bank of Canada hiked its key interest rate 0.5%.
Even though the feds are trying to “take some steam” out of the economy, don’t expect supply chain M&A to slow down anytime soon.
