June 27, 2011

Cash earmarked for logistics M&A sitting idle

In today's logistics M&A world, it's money, money everywhere, and not a place to put it, says BGSA exec.

By Mark B. Solomon

In an environment of tight credit and ample yet reluctantly deployed liquidity, the logistics industry has a problem that other sectors wish they had: Too much money available for buy-outs and not enough places to put it.

Of an estimated $500 billion in cash in the hands of private equity investors, approximately 10 percent is earmarked for acquisitions in the logistics sector, according to estimates made this week by Palm Beach, Fla.-based BG Strategic Advisors (BGSA), a leading supply chain mergers and acquisitions (M&A) advisory firm. Benjamin Gordon, the firm's managing director, based his estimate on the oft-mentioned ratio of logistics historically accounting for 10 percent of the nation's gross domestic product.

Gordon added, however, that because so many logistics service providers have annualized growth rates exceeding the 10 percent threshold, the extrapolated amount of private equity capital allocated to the industry could be as much as $75 billion.

Gordon told the ninth annual eyefortransport 3PL Summit in Atlanta that the industry has a true supply-demand dilemma in that there is a lot of money chasing a relatively shallow reservoir of opportunity. Beyond the private equity sitting on the sidelines, there is an additional $2 trillion in cash resting on corporate balance sheets, according to Gordon.

"There is probably more money earmarked for the [logistics] space than can be absorbed," he said.

In recent years, the logistics industry has been a fertile breeding ground for M&A activity as providers beef up their global capabilities in response to shippers' winnowing their ranks of partners and looking to work with a select group of large partners that offer close to "one-stop shop" services.

According to Gordon, the top 50 providers today control about half the logistics market. In the early 1990s, the top 50 controlled about 20 percent of the total market, he said.

"We are in a period where the big keep getting bigger," he told the group.

Gordon said so-called non-asset based or "asset-light" providers continue to be seen as attractive targets because of their ample cash flows, their expertise and sizable customer bases, and their relatively low cost structures due to the absence of hard assets like planes, trucks, and ships that might weigh down their balance sheet valuations.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

More articles by Mark B. Solomon

Resources Mentioned In This Article

Strategy Videos

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.

Subscribe to DC Velocity

Feedback: What did you think of this article? We'd like to hear from you. DC VELOCITY is committed to accuracy and clarity in the delivery of important and useful logistics and supply chain news and information. If you find anything in DC VELOCITY you feel is inaccurate or warrants further explanation, please ?Subject=Feedback - : Cash earmarked for logistics M&A sitting idle">contact Chief Editor David Maloney. All comments are eligible for publication in the letters section of DC VELOCITY magazine. Please include you name and the name of the company or organization your work for.