Lincoln International hosted a panel discussion at BVL Supply Chain CX which unites industry leaders and investors in the transportation and logistics (T&L) industry.

1

Private equity appetite is expected to return in 2025, despite recent M&A activity in T&L being primarily driven by strategic acquirers

Since the end of the pandemic, the T&L sector has experienced a “freight recession.” This, combined with higher interest rates, has impacted overall M&A activity, mainly sidelining private equity groups. However, strategic acquirers and PE-owned platforms have capitalized on this situation by increasing acquisition activity to expand and diversify across geographies and capabilities. The pursuit of creating global end-to-end service capabilities has been identified as a key driver.

With the interest rate cycle shifting and public company valuation levels stabilizing, private equity groups are beginning to reemerge as platform investors in T&L. The sector remains fundamentally attractive for private equity valuation creation, given the ample opportunity for accretive buy-and-build strategies due to a high degree of fragmentation, coupled with highly visible strategic exit routes.

Private equity’s position as a runner-up in the sale process for Schenker serves as supporting evidence that the T&L M&A market has reached, or is close to reaching, an inflection point, allowing PE acquirers to be expected to resume their active role in driving sector M&A in 2025.

2

Growing strategic importance of global capability build-out, but acquirers must recognize the importance of managing cultural diversity

Supply chain volatility, now regarded as the “new normal,” combined with rapidly changing geopolitics and trends such as near-shoring and China decoupling, implies that the M&A strategies of Logistic Service Providers (LSPS) should focus on building scale and capabilities across geographies to remain competitive and relevant for their BCO clients.

Distinct characteristics of the U.S. market, such as its sheer size, common language, and legal system, along with easier access to capital, have facilitated more frequent and larger M&A-driven scale-ups. European consolidators, on the other hand, face challenges posed by smaller domestic markets, differences in regulatory and legal frameworks, and language barriers, all while requiring expertise in executing and integrating cross-border transactions.

Savvy cross-border acquirers have long recognized the importance of target management and target platform scalability. Both are indispensable for successful cross-border expansion, given the need to (i) address inevitable cultural nuances, (ii) ensure proximity to local stakeholders, and (iii) partner with the new owner to drive global end-to-end cross-selling synergies in a coordinated manner.

3

Important role for private equity in long-term T&L sector consolidation

Despite the recent temporary decline in activity, as outlined above, private equity has historically been a significant consolidator in the T&L sector. The execution of buy-and-build strategies has facilitated and will continue to facilitate the accelerated creation of platforms that benefit from increasing competitiveness.

Targeted acquisitions drive international and trade lane-specific scale and enhance service offerings. Industry fragmentation presents ample opportunities for identifying complementary targets with the potential to enhance synergy benefits through multiple arbitrage. In addition to driving operational benefits, institutional investor involvement typically brings financial discipline and enhances reporting, risk, and talent management systems, coupled with support for investments in digitization and technology. Consequently, target companies are prepared for future strategic exits.

Furthermore, our panelists anticipate an increasing trend of private equity and strategic acquirers partnering to leverage their combined strengths in executing complex transactions in the T&L sector.

4

Perspectives in the emerging asset-ownership debate: asset-light vs. infrastructure and asset-smart

The preference for asset-light models in private equity buy-outs stems from several advantages that align with the use of acquisition debt financing and the generally shorter 3-5 year timeframe for value creation. The asset-light approach minimizes capital requirements, allowing firms to allocate resources toward growth, innovation, and operational efficiency improvements. This model also enhances flexibility, enabling swift adaptation to market fluctuations and demand variations. Furthermore, with lower fixed costs, targets can better mitigate financial risk associated with acquisition debt financing and maintain profitability even during downturns.

Conversely, infrastructure private equity funds continue to invest in the T&L sector, specifically seeking asset-heavy business models. Their focus is on assets that promise stable, long-term cash flows, such as cold storage facilities and trailer leasing operations. Ideally, these assets underpin logistics services connected with essential services while demonstrating resilience amid economic fluctuations.

Collectively, these approaches underscore the nuanced preferences and investment strategies that characterize the asset ownership debate within the private equity landscape. The findings align with the emergence of so-called “asset-smart” configurations (i.e., combinations of asset-light and asset-based service models). Here, “smartness” refers to the ability of asset-based activities to drive a competitive edge in the market through the ownership of specialized or scarce assets.

5

Technology and innovation in logistics

Technology is pivotal for economic success in the T&L sector. LSPs are under pressure to adopt and deploy state-of-the-art automation and digitalization to streamline operations, reduce operational costs and enhance service delivery, particularly during peak demand periods.

Investment in advanced technologies, such as robotics, artificial intelligence (AI), and data analytics, is reshaping business models. The capital-intensive nature of these investments poses challenges, necessitating careful navigation by companies to mitigate risks associated with technological obsolescence. The importance of supply chain visibility underscores the need for collaboration and integration across the supply chain to maximize operational efficiency, innovation, and customer experience.

Adopting a strategic approach to technology in M&A is critical. Decision-makers must balance in-house development with partnerships and acquisitions of technology providers. Technology evaluation has become a central piece of due diligence to ensure post-merger integration and optimal alignment of solutions with operational needs and growth strategies. Examples include M&A activities aimed at accelerating the shift to asset-light business models, where technology can be leveraged to optimize operations and reduce costs.

6

Robust outlook for M&A in T&L supported by strategic and private equity appetite

The M&A outlook for the T&L sector appears robust, fueled by strategic acquirers seeking to enhance global scale and diversify service offerings across various geographies. Targets exhibiting specialized capabilities and/or providing differentiating end-to-end solutions in key verticals are poised to attract significant interest; this applies even more so to targets of scale. LSPs serving clients in resilient verticals, such as healthcare, will remain in strong demand. Further contributing to the expected pick-up in M&A activity, private equity groups are anticipated to regain prominence as market conditions stabilize and the cost of capital potentially declines.

Given the high degree of fragmentation, buy-out private equity as well as infrastructure investors will have ample opportunity to contribute to industry consolidation. In addition to traditional drivers, the emphasis on technology and environmental, social, and governance (ESG) considerations will shape future M&A strategies. This, inter alia, relates to capitalizing on advancements in automation and data analytics. The growing importance of sustainability will compel companies to align with regulatory requirements and consumer expectations.

As geopolitical and economic factors continue to impact supply chains, organizations must remain agile and responsive to capitalize on emerging opportunities, ensuring they position themselves favorably within the evolving landscape of logistics and transport. Additional complexity, inter alia from changes in tariffs and regulation, should be a net positive, especially in forwarding and customs brokerage. Shippers will increasingly need service providers to keep their supply chains agile and efficient in the face of these changing circumstances. Geopolitical volatility will further reinforce the pressure on LSPs to build out well-balanced global capabilities.