2015 was the warmest year since records began (in 1850), it was also pretty hot 12 months in the area of business mergers and acquisitions, which hit a new high of $4.3 trillion in deals struck. Specifically in the logistics industry, several so-called mega deals led to a near year-on-year doubling of M&A value to $173 billion, according to data from PwC.
Prominent among the 2015 deals:
- FedEx’s $4.8 billion grab for TNT
- XPO Logistics’ acquisitions of Norbert Dentressangle ($3.5 billion) and Con-Way ($3 billion)
- Japan Post’s $5.1 billion purchase of Australia’s Toll Group
- Kintetsu World Express buying Singapore’s APL Logistics for $1.2 billion
To answer, we need to ask why are we seeing this heightened M&A activity in the logistics and distribution industry?
- Everyone is looking for growth by getting into emerging markets and expanding thier service base.
- The extent of margin compression – the value of world trade declined by 14 percent in 2015 – this is pushing consolidation.
- Money is still cheap. Interest rates are still low by historical standards and private equity firms are increasingly being drawn to business investments, especially when they see some of the high valuations applied to logistics and distribution companies
It has to be driven by a strategy as your self what are your looking for:
- Are you looking for market extension - new products?
- Customer acquisition
- To take out competition
- Special access to skills or intellectual property
Take the time to define what size of company you need to make a difference and search for targets that meet the criteria. In the screening process, identify companies that can offer realistic growth in terms of delivering free cashflow if not immediately then at least at some point in the future.
Secondly look at if the candidate is a cultural fit.
It may look great in terms of having all the right product and customer mix or warehouses and transportation assets, but if the culture is not compatible with yours it is going to be very difficult to make it work.
Are they a process driven company do they have documentation? SOP's?
Shameless plug here.. What kind of Software System do they have in place?
If the fit is not there , and you don't think you can work with them - take that into account -are you just buying the salesman or is there inventory? - How will your companies mesh?
And lastly because mergers and acquisitions can often get complex and emotional,
at every step of the deal process it’s important to remind yourself why you are doing this,
what is the desired outcome, and what should look this look like in a few years’ time?
Don't Get Stuck being a “deal junkie”, expending energy on making deals rather than on analyzing whether they make strategic sense.
So getting down to brass tacks..
Post-deal integration is a frequent and notorious stumbling block to M&A success.
How can you avoid these pitfalls?
Especially for your acquisitions, It is inevitable that the initial reaction will center around uncertainty. What is going to happen to my company and how will I be affected?
So you need put out information, preferably at a personal level, about why the business is being sold, explaining any new terms and conditions resulting from the deal, and if there are going to be requirements, these need to be spoken about sooner rather than later.
If you are the acquirer, it’s worth remembering that there is likely to be a lot of smart people as well as systems and processes in the company that you’re buying, so look to get the best out of both businesses.
DOCUMENT AND CREATE YOUR SOP'S for success.
A strong software system with established business process can be your best friend here.
instead of ruling by exception - get the 95% of your ordering and business systems under control using your software and allow the 5% to be handled manually.
Instead of the more common, every order and price is manually reviewed and updated.
with strong audit capability, Business Process rules - can make your acquisition seamless.
And at the same time this should communicate in an easy manner, what the new business practice will be.
This will also help in the integration process as people appreciate the efforts of combining the strengths of two companies. People often forget there’s also nervousness on both sides of the deal – you’ve just spent millions or even billions of dollars and you need to show success.
What does the future hold?
No one can say for sure but past results seem to indicate that yes, deals are going to continue over the next few years. Driven by necessity as margins continue to fall, there is still room for consolidation. Many companies are engaged in discussions right now.
Money coming out of Asia, especially China, to buy developed market assets is likely to be a rising phenomenon. And as well as more small and mid-sized M&As, the last mile fulfillment and the logistics technology and software sectors will see increasing deal activity.
In addition, against a backdrop of disruption and transformation in other industries (See UBER post from Last Week) , don’t be surprised to see some ambitious, game changing moves involving new entrants with deep pockets. Amazon’s recently announced investment in Air Transport Services Group (ATSG) so that it can run its own cargo delivery operation flying 20 used Boeing 767 freighters could be a harbinger of what lies ahead.