July/August 2018

Intermodal Mergers, Acquisitions to Continue

Intermodal will continue to be fertile ground for more mergers and acquisitions, driven by historical as well as future growth and industry-specific factors, a number of investors, analysts and company officials believe.

Senior executives from recent buyers such as NFI Industries, ITS ConGlobal and RoadOne IntermodaLogistics joined investors such as Clarendon Group in outlining the 2018 merger and acquisition, or M&A, market for Intermodal Insights.

"Putting aside the current concerns about a trade war, the global outlook for moving more goods through the intermodal container supply chain is favorable," said Steve Rubin, CEO of ITS ConGlobal. "As the growth occurs, the companies that are involved in intermodal provide an important part of the supply chain, and that makes intermodal a great place for investment."

Mark Fornasiero, managing partner of Clarendon, said that intermodal’s historical growth at twice the rate of GDP, as well as forecast future growth, create attractive acquisition opportunities over the next two to five years.


Another positive, Fornasiero said, is that there are numerous consolidation opportunities because the intermodal industry itself is just a few decades old, which makes it far newer than other transport sectors.

"Acquisitions definitely will continue," Fornasiero said. "Drayage is still very fragmented; no company has more than single digit market share. In 2000, there were no [drayage] companies with more than 1,500 trucks. Now there are nearly 10."

Several other important factors affect M&A activity.

"We spend a lot of time early on with assessment," Ken Kellaway, CEO of RoadOne, told Insights. "Our success is directly correlated to doing due diligence. We are looking for the right fit in terms of culture and economics. We want to make sure it is the right fit for the seller as well. In most cases, we want to have the sellers stay with us."

Mark McKendry, vice president of intermodal at NFI Industries, said the acquisition of CMI has been a strong advantage in what he called "one of the wildest markets anyone has seen. Everyone is feeling a bit of a pinch."

Adding Capabilities

"The acquisition sends a sign that we are adding capabilities and creating the ability to provide more complex shipping solutions," McKendry said.

Fornasiero stressed the importance of building a strong management team and a diverse customer base during the acquisition process

"A lot of companies are founded by exceptional entrepreneurs, but they don’t always build a great team – the prospective buyer needs to know how to institutionalize growth," he said.

The diverse customer base is needed to create a workable mix of some shippers that buy strictly on price, with others that recognize the value of a drayage partnership and don’t switch to seek a lower rate.

While there is optimism, there are some constraints, too.

"Intermodal is not at the top of the transport M&A list for most people," said Stifel Nicolaus analyst Dave Ross. "Most of the attention is to non-asset based trucking and last-mile businesses. You’ll probably continue to see the deals in that sector because people don’t want to buy more trucks if they can’t seat them."

"Intermodal is a part of the puzzle," Ross said. Buyers will be attracted to intermodal as a part of a broader mosaic of services that can be offered in addition to larger services such as truckload.

Profitability Considerations

Ross said he wasn’t sure what could make intermodal acquisitions more attractive, since smaller drayage companies can sometimes lack the profitability, technology or other factors that would differentiate their businesses and make them attractive acquisition targets.

Acquisitions also are being held back to a degree, said David Freeman, director at Capital Resource Partners, because there are a number of drayage companies in the $10 million to $30 million annual revenue range whose profitability is not at a point to increase their attractiveness and growth opportunities.

Freeman also cited the consequences of industry growth. The stronger market for intermodal increases margins and profitability. However, rising profits encourage higher asking prices when a company wants to sell, which can dampen a buyer’s interest.

More Acquisitions Planned

"We are looking at all sectors for potential acquisitions, with one exception – big, heavy asset transportation companies," Rubin said, such as railroads, trucking companies or shipping lines. "All of the other sectors are interesting to us. You have to look at the fundamentals of the company, not just the sector of the industry."

"We focus on acquisitions that will create more value for customers, not growth for growth’s sake," Rubin added, citing transactions that added geographic or customer coverage. "It’s about intelligent growth. We want to be able to do more for our customer base and for our stakeholder class – the ports, railroads and other partners – by growing to meet their evolving supply chain needs."

Like Rubin, Kellaway said RoadOne continues to seek acquisitions.

Kellaway cited considerations for future deals such as the potential for building a complementary customer base between buyer and seller, increasing geographic coverage in current markets or adding new ones that also are evaluated.

A particular area of attention right now, Kellaway said, is domestic intermodal, where the electronic logging device mandate has changed the market dynamics by altering capacity at the same time that freight levels have increased.

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