For the majority of logistics companies during the COVID era (2020-2021), the global health crisis translated into sales and profit windfalls for shippers that were able to step up and meet the unprecedented demand for such things as medical supplies and consumer goods. As a result, the value of logistics service providers surged alongside their skyrocketing sales and profit performance. Moreover, within the M&A arena servicing this space, the valuation pendulum swung firmly in the direction of companies also taking the opportunity to sell in this environment.
But now in the post-COVID era, the world has found that the valuation pendulum has swung back toward buyers as financial results in the sector soften and, in some cases, seemingly plummet for many logistics providers. Furthermore, still choking on too much inventory in the post-2022 holiday season, the market cannot accurately forecast when demand will stabilize again and at what level. Uncertainty such as this unfortunately further cements investors’ favorable position.
For brokers working in the M&A industry, managing client expectations is always a balancing act. For instance, how can a salesperson successfully sell an engagement to a potential new client without discussing valuation, especially in a climate of such uncertainty? In all cases, the topic of valuation is impossible to avoid. Therefore, it is critical in the early stages of a transaction to apply nothing more than a “soft touch” to the topic of valuation but marry that to a hard look at how any given company can expect to perform in the 2023 and 2024 calendar years. While most transportation companies have never made budgeting a top priority, giving laser focus to this exercise has suddenly become the key differentiator between a fair valuation and a highly disadvantageous one for sellers.
This brings sellers, brokers, and buyers alike to an unfamiliar crossroads. Without having enough data to readily agree on the new norm, the battleground between logistics companies looking to sell and their would-be buyers has become riddled with pitfalls for all stakeholders. It has become of critical importance that brokers successfully walk a tightrope with their clients when the discussion turns to valuation, making sure not to prematurely over-promise when the market has not yet shown its hand. In other words, the poker face of M&A must evolve. Of equal importance is that sellers collect as many tea leaves as possible from their own client base with respect to how they are forecasting their new needs for transportation and warehousing. In the end, the spoils of the valuation war will go to the party with the firmest hold on data and the most realistic set of expectations in this unparalleled era until the new norm becomes clear.
