Consolidation in the Last Mile Summer 2023 - Final | Page 13

COVID put last-mile companies in the spotlight and investors noticed . Even with rising interest rates , the result is a continuing interest in financing mergers and acquisitions in the last-mile space , according to Spencer Tenney , President & CEO of Tenney Group .
“ It ’ s tough to be a complete logistics transportation solution without having the final-mile buttoned down ,” Tenney says . “ So , for the remaining market leaders that have not yet been acquired , there will still be strong interest in getting those deals done . We continue to see a lot of attention from strategic buyers and private equity investors , even from those that have not historically been interested in logistics . That ’ s especially true in the final mile , considering the growing demand in the space and the highly fragmented competitive landscape .”
He acknowledges that the environment has cooled in some respects over the past 12 months , contrasting it with the go-go days of 24 to 36 months ago . “ If you go back to that time , we had record low interest rates and record growth fueled by ecommerce ,” says Tenney . “ You had a relatively small pool of established operators that were viable acquisition targets , and many of those deals were completed ,” he points out . A sample of transactions that Tenney Group had a hand in included the acquisitions of Linn Star Transfer by Forward Air , Freight Rite , Inc by U . S . Pack / New Spring Capital , and NRX Logistics by Cardinal Logistics / HIG Capital .
Tenney points to an evolving market that ’ s cooled since the spike created by COVID . “ The market has evolved ,” he says . “ We ’ ve seen some transformations in consumer behavior . COVID disrupted how and when we spent money on a variety of goods . Some of that spending has normalized , although the rate of growth of ecommerce year-over-year is still staggering .”
What COVID did do , and what remains , is to attract interest in the last mile and in improving its efficiency and profitability . “ Investors are intrigued by this market ’ s growth potential , but it ’ s something of a mystery to them ,” he says . “ Their acquisition targets are experienced companies , often in the $ 25 to $ 300 million in annual revenue range with established management teams . They are saying , ‘ We want to be in this space , but we don ’ t want to assume all the risks or learn as we go . We want proven operators . We ’ ll provide them with the resources , capital , and tools to scale up those businesses .’”
Tenney says new deals and first-time investors are jumping in despite an uncertain business environment . “ During COVID , valuations on certain companies were artificially inflated . Now , though , the market has normalized . It ’ s become fairer between the buyer and seller . For the last three quarters , we ’ ve had record submissions of new buyers at The Tenney Group ,” he says . “ These are investors expressing a first-time interest in growing their existing transportation business via acquisition . I know that seems counterintuitive . The reason is this : Though interest rates have increased dramatically over the past 12 months , and gaining access to capital is more challenging , these investors see the cost of doing nothing to offset rising operating expenses as more expensive and more risky .”
Private equity groups and strategic buyers are focusing on companies that are market leaders with the runway to grow . “ Buying interest remains very high for top performers , which was certainly the case in our most recent final-mile transaction that closed this month . Details will be released soon ,” says Tenney , “ When you have a growing but highly inefficient vertical like final-mile , you need a certain amount of volume in terms of revenue to attract investors . That ’ s
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