The Loadstar | When Consolidation Pressure Meets a Cautious Outlook: M&A in 2024

Dec 2023

Originally posted by The Loadstar on December 12, 2023.

In 2023, global growth was limited by escalating geopolitical conflicts and central bank actions to combat inflation and soaring energy costs, which led to headwinds across the logistics and transportation industry.

Consolidation pressures and a cautious outlook will converge next year.

“…given the increased cost of capital and macro headwinds, valuations in the sector have declined on average by 1x-2x over the past 12 months,” Gaurang Shastri, Managing Director in Lincoln’s Business Services Group, commented. “Despite this, there remains an ‘expectations gap’ between buyers and sellers that will continue to narrow, most likely providing a more favorable deal-making environment in 2024.”

Recent inflation declines, potential interest rate cuts and stabilizing inventory-to-sales ratios indicate a market recovery in late 2024 and into 2025.

“A greater driver of deal-making, in our view, is the nearly 18 months of profit normalization in freight forwarding, spurring the need for deals to drive growth and margin expansion,” Dirk Engelmann, Managing Director in Lincoln’s Business Services Group, stated. “Typical M&A rationales include achieving trade lane-specific economies of scale, accessing proprietary technology or specialized capabilities, while acquiring sector expertise.”

Lincoln International expects strong investor interest in contract logistics operators as they have counter-cyclical attributes such as generally stable / growing revenues and strong client retention.

“Industry fragmentation will continue to drive M&A in the small and mid-cap segment for both strategic acquirers and private equity firms building new ‘platforms’”, Dirk said.

Gaurang and Dirk said they anticipate that larger PE-backed consolidation platforms will participate in sizeable transactions to monetize their investments, but timing is of question due to economic uncertainty.

View additional insights in the original article.