For several years now, there has been a steady stream of mergers and acquisitions in the transportation and logistics industry — from big, high-profile, mega deals to very small transactions to everything in between. What has been driving all of this M&A activity?
“If you start at the consumer and work your way backwards through the supply chain, what you find is that the demands in the marketplace have significantly changed,” said Frank McGuigan, President and Chief Operating Officer at Transplace, in a recent episode of Talking Logistics. “You have more demanding consumers who are placing greater demands on shippers who are placing greater demands on suppliers, and so on, all the way up the supply chain.”
What that means is that the requirements to successfully serve the entire supply chain are changing. As McGuigan explains, “The need for increased velocity, the need for increased visibility, the need to deploy products in different locations — all of those things are putting pressure on supply chains, and it’s forcing manufacturers and retailers to invest in that side of the business, and what you have as a result are high-growth areas in the marketplace like transportation management and technology that are good opportunities to invest in.”
Another driving force behind mergers and acquisitions, particularly in the third-party logistics (3PL) industry, is creating scale and network efficiencies.
“Scale is one thing and network leverage is another,” explained McGuigan. “With buying power, we believe, there’s a point of diminishing returns and it only gets you so far when capacity becomes constrained in the marketplace. But scale of network — the ability to leverage your network to the benefit of the carrier community and the shippers on your network — that’s the differentiator.”
In short, the ability to create win-win benefits for both shippers and carriers is the power of the network, and the more shippers and carriers you add to the network, the more opportunities to deliver value to everyone on it.
McGuigan and I also discussed the attributes logistics service providers look for in companies they may want to acquire. While there are many important factors to consider, such as service offerings, financial performance, talent, and customer base, there’s one that rises to the top: culture.
“There are deals we say ‘no’ to, and have said ‘no’ to, because there wasn’t a terrific cultural fit,” said McGuigan (Transplace has acquired seven companies over the past seven years). “Transplace has a ‘Customer First, People Always’ culture, so the companies we acquire have to keep people and customer in mind with every decision they make on a daily basis. If that’s not the culture of their business, then it’s not a good fit for us and we’re going to spend too much time trying to indoctrinate them into our culture and ultimately that’s not good for anyone involved.”
McGuigan shared the following anecdote to illustrate the odd situations companies get themselves in sometimes when they’re trying to combine different cultures:
“I was recently at a large global company that’s going through a significant merger/acquisition and they were talking about how there’s the culture of the company that’s acquiring them, then there’s their own company culture, and then there’s also a team actually working on developing a third culture that’s going to be the combination of the two existing cultures.”
“You have to live your culture and it starts from the top down,” added McGuigan. “If you’re not living it and supporting it and nourishing it every single day, then it’s not going to be the culture that you want.”
I encourage you to watch the rest of my conversation with Frank for additional insights and advice on this topic, including a discussion on whether the rules for success in the 3PL industry are changing and whether M&A activity will increase in the year ahead. Then post a question or comment and keep the conversation going!
