After a two-year freight recession and a drastic pullback in lending from private equity- and venture capital-backed firms investing in supply chain technology after the COVID pandemic, Benjamin Gordon, founder and managing partner of Cambridge Capital, says there’s been a resurgence in strategic mergers and acquisitions.
Gordon and FreightWaves CEO Craig Fuller discussed current trends for the freight and logistics M&A market on Wednesday at FreightWaves’ F3: Future of Freight Festival.
Gordon noted the recent acquisition of U.S-based IMC Logistics by global freight forwarder Kuehne+Nagel, which acquired a majority share of the drayage company nearly a week ago, as an example of a strategic M&A.
“Kuehne+Nagel didn’t have to buy anything, but number one, public companies are under pressure to buy more,” Gordon said at the Chattanooga, Tennessee, event. “If you were a public logistics company and you were growing 10-20% during COVID, then post-COVID and during the freight recession of the last two years, your shareholders were expecting you to grow. You weren’t performing, but it wasn’t your fault. It was a freight recession. But now it’s time to lean in.”
Over the next year, Gordon predicts that private equity-backed logistics companies will start buying freight-related businesses after a challenging few years post-COVID.
“The challenge with the private equity-backed logistics companies that have lived through the freight recession in the last two years, there’s this great reset in terms of valuation,” he said. “If you’ve lived through the freight recession in the last two years, and there’s this great reset in terms of valuation, most private equity buyers today, in order to finance their acquisitions, will have to put more cash in.”
However, Gordon said that’s what’s been holding back private equity-backed logistics firms from buying businesses that would rather use debt to pay for their acquisitions.
“But, because, if you bought during 2021 or 2022, your EBITDA is lower, your debt ratios are higher and therefore, you need fresh equity to put in,” he said.
Gordon predicts that in 2025, large corporations will make decisions and deals to divest parts of their businesses that don’t fit their business needs anymore.
Fuller discussed international ocean container companies that had all-time-high profits in 2021 and 2022 during the supply chain challenges of the COVID pandemic that have leaned into the U.S. domestic market.
“Is it a reflection of the confidence in the U.S. market , the U.S. consumer and the U.S. economy,” he said. “What is really driving that change?”
Gordon said there are multiple factors behind that push.
“It’s both of those factors and then there’s also a third, and that is a lot of the big steamship companies recognize that ‘live by the sword, die by the sword’ of the ocean cycle is not a great place to be. You’d rather have more predictability,” Gordon said.
He added that Maersk said it would like the majority of its profit to come from non-steamship activities and services.
“So diversification is a big element, and I think that’s why Maersk and other big steamship companies are looking to diversify for all those reasons, to expand it and to deploy the excess cash from that spike,” Gordon said.
What is Gordon bullish about in VC?
He said there are a couple of targeted areas that VC-backed companies are interested in investing in, including AI-based funding.
“Clearly, this is not just true for FreightTech – it’s true for the venture world as a whole,” Gordon said. “So AI, I think right now it’s maybe like the internet was in 1999 you know: It’s frothy.”
He said there’s been a lot of funding activity and innovation in areas that make a better workflow, including voice recognition to help truckers with their businesses.
Asked by Fuller if there’s any business out there that is off the radar that he’s incredibly enamored of right now, Gordon said to look for the customer pain point.
“There was a period of time where a lot of people were chasing what was getting venture attention, and oftentimes, that’s the worst thing that you want to do, because you’re chasing what everybody else is chasing.”
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