A strategic moment in transportation M&A

Recent years have seen a downturn in business — and valuations — for transportation and logistics companies.

“Transportation and logistics performance ultimately hinges on freight rates,” said Grant Thornton Transaction Advisory Partner Patrick McAuley. “Right now, the freight rate environment is still challenged, and in an unusually long ‘soft’ market, driven by excess capacity and softer demand.”

A look at expenditures since 2022 shows a reduction in the total being spent on freight transportation across all domestic modes. This decline in expenditures is part of what’s forcing lower rates.

McAuley noted that supply has not dropped as quickly as expenditures. “We have an imbalance in supply and demand. Lower demand is a piece of it, as that has softened due to some geopolitical headwinds and tariff uncertainty, but to me it’s more on the supply side. We have an oversupply and additional capacity in the system, and it’s heavily influenced the rate environment.”

Grant Thornton | Stax Managing Director Joel Slater agreed, “You can see right now, in spot rates for the trucking market and in other indicators, that there is just not as much volume growth as people were hoping for. That, broadly speaking, is putting some pressure on the M&A environment.”

“There is a hesitance to invest, given rates and geopolitical uncertainty,” Slater observed, “but that said, there are definitely some green shoots.”

The distressed market and subsequent valuations in transportation and logistics have slowed M&A, especially for private equity firms. “The biggest reason that they haven’t transacted on the aging assets in their portfolio is enterprise value,” McAuley said. “Portfolio assets aren’t moving because private equity owners can’t get comfortable with what they’re worth in this market, or they’re unwilling to absorb smaller returns or even losses.”

That creates opportunities for the companies that know where to look.

Strategic fits

“The place where we’ve seen activity in the last 24 to 36 months has been on the strategic side,” McAuley said.

The transportation industry has recently experienced some large mergers and consolidations that are having ripple effects across the market. “Those transactions are going to create winners and losers as the integrations play out,” Slater said. To stay ahead of these and other market shifts, many companies are looking for their own opportunities. 

Be opportunistic

Find synergies

Smart buyers want to quantify the value of synergies before they take action, and McAuley described how two asset-based carriers did exactly that. “They stood out in a competitive process by bringing a well‑built synergy model that justified enterprise value credit as part of their bid. They had already identified nearly $20 million in potential synergies, and validated how quickly those could be realized. That level of both value and precision is what separates strong strategic buyers.”

Technology

“Technology has become a major factor, even just the level of efficiencies that companies have eked out with technology,” Slater said. “I thought there would be a leveling-off after COVID, but efficiencies continue to improve.”

The key, again, is to quantify the value of an acquisition’s technology in advance. “What are they able to produce in the back office?” McAuley asked. “How are they better able to manage asset-based factors like operating ratio in a difficult rate environment? A lot of it is about people-process-system management.” Back-office technology can empower analytics, reporting, compliance, risk management, supply chain visibility, cost reduction, operational efficiency and other capabilities that will fuel resilience and agility.

“What we’re seeing is that, even in tough environments, companies are investing in solutions to manage the business, but also to compete in the marketplace,” McAuley said. Slater agreed, “There’s definitely a lot of fishing for assets that have unique technology IP. But it’s really critical to get the technology implemented correctly, and have not just technology IP, but also process IP around how you stitch all of that together.”

Competitive technology IP often includes customer platforms that help companies acquire new customers and expand their business with existing customers. Customer-facing platforms can directly drive top-line revenue, with quantifiable impact. “If companies are doing it right, they have a good interface with their clients, they’re focused on the elements that matter and they’re measuring the success of those implementations,” Slater said.

Even with the most innovative opportunities, it’s important to apply some traditional analysis and a practical approach.

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“Find the synergies, but stay realistic,” McAuley said. “Over-promising destroys value. You can’t rely solely on the financials — understanding the commercial, operational, cultural and tax dimensions is essential.” 

Recognize risks

“Where we see deals fall apart is in the cultural due diligence, particularly in a distressed environment,” McAuley said. “Cultural due diligence is a frequent point of failure in transactions involving distressed assets. It’s essential to assess whether underperformance is isolated to specific functions or indicative of broader organizational challenges.”

“As you think about any distressed situation, you’re going to wonder about revenue visibility and what caused the distress in the first place,” Slater said. “Was it a leverage issue that’s solvable with refinancing or is there a real concern around revenue visibility? Break it down and determine whether it’s a macro situation, a customer-specific issue or something else. Assets are structurally in decline. Is the company just going through a cycle? How does it typically behave over the course of many years?”

Norris noted, “Because we’ve had a downturn in this industry for the past 36 months or so, some companies have not invested in their equipment the way they typically would. Make sure that fleet equipment has been maintained appropriately, so that you’re not stuck with a lot of unexpected up-front costs post-acquisition.”

With a practical perspective in mind, companies can use today’s opportunities to build the resilience and agility they will need soon.

Be ready to rise

“I think we’re starting to see an uptick in the market now,” Norris said. “We’re having a lot of discussions with clients that are ready to transact in the next year. I think you’re going to see an increase in M&A, regardless of how the industry performs as a whole.”

Industry leaders are already applying practical approaches and smart deal structures to make their moves.

“Deals are structured for flexibility, earnouts, protective clauses to bridge valuation gaps or rollover equity for target businesses that are being acquired,” McAuley said. “Buyers are asking sellers to put their money where their mouths are, relative to what the next year and beyond will look like, but we’ve seen an appetite for that on both sides. We’ve used scenario-based valuation modeling, tariff risk analysis and supply-side analysis.”

“Demand and rates still dictate much of the overall environment,” McAuley said, “but freight isn’t going away, and companies are entering this year with a stronger outlook.”