I interviewed Ben Gordon who discussed M&A in Logistics.
1. Please provide a brief background of yourself
This is Ben Gordon. I am the founder and managing partner for BG Strategic Advisors. BGSA is a leading investment bank specializing in the transportation logistics and supply chain sector. We provide M&A advice and assist companies in raising capital, pursuing growth strategies, and other transactions throughout the supply chain sector. We’ve worked with companies in trucking, freight forwarding, warehousing, supply chain technology, distribution, recycling, and all other areas of supply chain. We’ve worked in over 30 deals in the sector over the course of the last 12 years, and you can feel free to visit BGSA.com for more info on BGSA.
I spent my career in the supply chain sector, first as a consultant at a firm called Mercer, specializing in transportation logistics; then as the founder and CEO of an e-commerce and transportation company called 3PLex, which is one of the first in the Web-based transportation-management systems arena. I founded the company, raised 28 million in capital, built, it, grew it, and then, eventually, we sold it to Maersk, who then sold it to IVM.
In the third chapter of my career, I’ve been the CEO of BGSA, the leading M&A and strategic-advisory firm in the supply chain sector. And in addition, we’ve set up a merchant bank, or a private equity arm, investing earned capital with clients in select situations, and that firm is known as Cambridge Capital. I’ve had the opportunity to get to work with lots of great people and companies throughout the supply chain as an investor, an advisor, and as an operator.
2. What are the current drivers in M&A in logistics?
We are seeing a wave of M&A activity, and I would characterize it, really, as a third wave. If you think about how the industry’s evolved, really, the whole outsource logistics world took off in the ’90s. It took off because of the move by large corporations toward outsourcing their core competencies.
Hamel and Prahalad wrote the book Outsourcing; of course, Michael Hammer then wrote the book Reengineering the Corporation; and Jack Welch at GE famously said, “Your back office is somebody else front office, so outsource it.” We saw outsourcing take off not just in logistics, but also in IT with companies like EDS, in HR with PEOs like ADP and across a whole series of categories. Logistics and supply chain was an important part of that, so I think that the first wave of growth in the industry and M&A activity was associated with those early, early days of outsourcing.
I think the second wave was really in the 2000-plus time frame, and that really was about consolidations. In truck brokerage, we saw people like C.H. Robinson buying up other brokers like American Backhaulers. In freight forwarding, we saw companies like UTI buying up other forwarders including their agents. And in warehousing, we saw companies like Ozburn-Hessey buying up other warehousing firms like Lanter.
The third wave, which is the wave that I believe we’re in today, is really the wave of convergence. Convergence is about combining different services under one roof for the benefit of customers. An example of that would be a company that’s strong in one sector making an acquisition in an adjacent service to do a better job of serving that sector.
A good example of this trend is in the contract-logistics arena, with you’ve had companies like Jacobson. Jacobson moved from their core business in warehousing and transportation into packaging when they acquired Wilpak. That allowed them to combine packaging, warehousing, and transportation for core customers in the consumer goods arena. Another example would be in the freight forwarding and truck brokerage arena. When C.H. Robinson decided to buy Phoenix, they combined combining their brokerage with Phoenix’s freight forwarding to provide an integrated global service.
Another example would be in the realm of electronic recycling and distribution, where Arrow Electronics bought a company called Converge, combining their $20-billion electronic-distribution business with a much smaller but much higher-margined specialty service in electronic recycling and remarketing. This theme of convergence is something that we expect to see more and more of as smart companies decide to pursue acquisitions that allow them to provide more complete customer solutions.
3. Who is doing it and why?
I think that there are a series of aggressive acquires both in the convergence arena, as well as in the consolidation arena. Good examples of convergence buyers include C.H. Robinson combining with freight forwarding with the acquisition of Phoenix; Waste Management combining their core waste business with electronic recycling with the Access Computer Acquisition; and contract logistics companies, particularly private-equity backed firms (in which Jacobson is an example) moving into packaging with the acquisition of Wilpak; freight forwarding with a slew of Asia-U.S. acquisitions, etcetera.
You also have a series of acquirors in the consolidation realm. A great example of that would be XPO Logistics. Brad Jacobs is aggressively pursuing growth in truck brokerage to scale the XPO business, has which has gone really, from a tiny business in the market two years ago to, I believe, the fourth largest truck brokerage company and will likely continue to expand and, in my opinion, probably become the second largest truck-brokerage company within the next couple of years. We see more and more activity there.
4. Do you have any recommendations?
I think the number one suggestion for companies in the sector is: Make sure that you have a clear point of view with respect to your strategy. If you are a truck-brokerage company, you can’t expect to compete effectively against giants like C.H. Robinson or high-growth companies like XPO Logistics or powerful technology-based companies like Echo Global Logistics unless you have a clear plan to either a) scale up; or b) differentiate in a meaningful way.
If you think you can do that, then, by all means, pursue that strategy, and put the capital into it to make it happen. If you don’t think you can do it, then now’s a great time to be a seller to take advantage of robust M&A activity and buyer interest, lots of available capital to finance deals, and favorable valuations as a result. Above all, pick a strategy; don’t find yourself stuck in the middle, pursuing your current plan without regard for what’s happening in the market around you.
The last thing I would say is: If you are an investor in this space, make sure you're investing in companies that are well-positioned to either be scaling up into market leaders or pursuing protected niche strategies to become dominant in their specific subsectors. I think that if you pursue that strategy, you’re likely to continue to see great value and great success in the logistics and supply chain arena. Ultimately, that’s what we’re all interested in as investors, as operators, and as advisors in the supply chain sector.
If you have any questions, I’m certainly happy to discuss. You can reach me at Ben@BGSA.com. Go to the website, www.BGSA.com, or call us here directly at (561) 932-1600. Again, this is Ben Gordon, founder and managing director at Cambridge Capital and BG Strategic Advisors, and I hope this feedback’s been helpful for you. Thank you.
About Ben Gordon
Founder and Managing Partner for BG Strategic Advisors