Despite the sheer size of the transportation and logistics market, there has been limited technology innovation to streamline the process of moving goods from point A to point B. Given that the industry generates $1.3 trillion in business, representing 11% of GDP, companies looking to improve efficiency and reduce cost will continue to drive development of the web-based aspects of the business. Recently, M&A in the sector has been on a run-up and thousands of businesses in the sector will continue to depend on providers of enhanced solutions and services.
The logistics market has historically been controlled by internal shipping departments or asset-based carriers – companies that own fleets of trucks, ships, airplanes, etc. Maximizing asset utilization is obviously crucial to profitability for these businesses and has become increasingly complex given the volume of goods being shipped. As a result, a number of companies have emerged that focus on making the shipment of goods more efficient and cost effective. Most came in the form of offline, phone-based freight brokerages, which typically house agents armed with a network of shipper relationships that quote rates based on their past dealings with carriers across similar routes.
While offline brokerages helped streamline the industry to a certain extent, shippers and carriers alike have realized further reductions in cost through web-based pricing engines. Businesses are now leveraging web-based software platforms to instantly quote shipping rates across numerous routes; allowing shippers to reduce shipping costs dramatically by securing the best available rates and carriers to fill excess capacity that otherwise would not have been utilized. Given that the market is so vast and the need for cost efficiencies so great, a number of these technology-enabled freight brokerages have experienced tremendous growth and success over the past few years.
Financial sponsors are taking notice—Volition Capital, for example. A few notable examples include Echo Global Logistics (IPO in November 2009), Coyote Logistics (#6 on the 2010 Inc. 500), and Volition Capital’s most recent investment, GlobalTranz, a Phoenix, AZ-based business that grew in excess of 100% in 2010. Also, late last year, Thoma Bravo bought UPS’ logistics business based in Baltimore, and rebranded it Roadnet Technologies, its name prior to the global shipper’s decision to buy the company in 1986. [Editor’s note: Thoma Bravo will continue to make deals to support the asset, according to a source.] Earlier this month, HIG Capital recapped Progressive Logistics Services, an Atlanta-based company. This market is extremely large and we are excited to watch as technology-enabled providers like GlobalTranz continue to capitalize on the opportunity.
From an M&A perspective, there has been a significant amount of activity as technology-enabled providers continue to gain market share and solidify their foothold in the market. One unique aspect of this industry is that success can largely be attributed to a company’s shipper and carrier relationships, in addition to technology. These relationships are often fostered over a number of years, but the easiest way to acquire them is to purchase them. Consequently, technology-enabled providers have accelerated growth in many instances by acquiring offline brokerages for their shipper and carrier portfolios and simply on-boarding them onto their technology platform. We expect to see M&A activity continue as the industry evolves and furthers its reliance on technology to reduce costs and increase efficiencies.