The Road to Growth

Mergers and acquisitions have been much favoured as a means to achieve growth and increased market share and the materials handling industry has been seeing a new wave of consolidation. What factors should companies – as well as customers and investors – look for on the way to a ‘commercial marriage made in heaven.’ Eureka asks Barry Sheehan, Associate Director at Livingstone.

The materials handling industry has been no stranger to merger and acquisition (M&A) activity; the first example appears to be the acquisition of the Bullock Electric Company by Allis-Chalmers in 1903. The industry as we know it today started to take shape in the 1980s, as the main names of the industry rose to the top. We have seen at least 28 mergers over the past 15 years and the landscape is shifting once again.

Mutual attraction

Overall, the materials handling industry’s M&A activity has gone reasonably well. It probably helps that materials handling companies tend to have pretty clear aims and objectives, and their routes to those goals are quite well aligned even before those big get-togethers. But even common goals are no guarantee of success and the growth of global, multinational organisations makes things more difficult. Building a successful merged organisation does not happen by accident; it has to be carefully planned and rigorously implemented.

“M&A activity in the Transport and Logistics industry in recent years has been more influenced by the increasing demands of end customers and the requirement to deliver high-quality, integrated, end-to-end solutions on a global basis,” said Barry Sheehan, Associate Director at Livingstone, a corporate finance firm. “This is fuelling acquisitions of specialist providers which can improve and expand acquirers’ existing service offering. Accordingly, such providers tend to trade at higher multiples on both public and private markets. Furthermore, transport and logistics is by its nature a global industry and M&A has been an efficient vehicle for delivering international expansion strategies.” However, can mergers be veils behind which businesses conceal the decommissioning of excess capacity, in an extremely competitive and congested market?

“While M&A can help address excess capacity, the more recent trend in the market to deal with fluctuations in trading volumes has been the development of ’non- asset’ or ’asset light’ operating models,” Sheehan explains. “These models often involve the use of an owner-operated fleet and therefore reduce the capex levels required to maintain company-owned fleets.”

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