When the consultancy, Armstrong & Associates (A&A) staged its “7th annual 3PL Value Creation North America Summit” in Chicago late last year, the focus again was on coping with supply chain volatility.
In the fall of 2019 industry analysts were saying that 3PL providers were confronting considerable challenges created by uncertainty. That situation may have only become more complex for 2020, experts now assert.
The panel addressing “Transportation & Logistics Merger & Acquisition Trends & Insights,” was especially engaging for the participants.
“M&A may be facing a few more headwinds in the T&L sector due to concerns about a freight recession, trade war tensions with China, slowing GDP growth and political uncertainty with the impeachment proceedings,” says Kris Hopkins, Head of Transportation & Logistics at Houlihan Lokey, Inc., an independent, advisory-focused, global investment bank.
At the same time, however, investors can hedge their bets by concentrating on 3PLs specializing in growing segments, such as those serving e-commerce customers and final mile logistics providers. Another area that has “recession resilient” characteristics are consumer staples, such as food, beverage and household goods. Meanwhile, cold chain logistics is an area that should continue to hold up well during a potential downturn, as demand for these essential products and services remains robust.
“Even when an economy faces a downturn, consumers still need to eat and the long-term trends and demand for fresh foods requiring temperature control remains attractive,” says Hopkins. “And demand for cold chain warehousing and transport solutions in the temperature-controlled segment remains high.”
According to Hopkins, 3PLs reigning in their global supply chains in reaction to trade tensions are not likely to be as attractive as those willing to reconfigure their networks.
“While moving some sourcing to Mexico might make sense for some manufacturers, we see more reliance on Southeast Asia as an alternative to China,” he says. “The most diversified 3PLs are always going to be better off and can weather disruptions more effectively.”
At the same time, the “middle market” remains resilient. Hopkins says management strength and “a deep bench” is important for strategic buyers and more acutely for private equity buyers who are not in the business of running their portfolio companies.
“Finally, we would advise managers to be mindful of the upcoming elections, and time their sale launches accordingly,” says Hopkins.
About the Author
Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
