When the consultancy, Armstrong & Associates staged its 7thannual 3PL Value Creation North America Summit in Chicago last month, the focus again was on coping with supply chain volatility.
Last year at this time industry analysts were saying that the third-party logistics (3PL) providers were confronting considerable challenges created by uncertainty. That situation may have only become more complex for 2020, experts now maintain.
The panel addressing “Transportation & Logistics Merger & Acquisition Trends & Insights,” was especially engaging for the participants.
“M&A may be facing a few more headwinds in the T&L sector due to concerns about a freight recession, trade war tensions with China, slowing GDP growth and political uncertainty with the impeachment proceedings,” says Kris Hopkins, Head of Transportation & Logistics at Houlihan Lokey, Inc., an independent, advisory-focused, global investment bank.
At the same time, however, investors can hedge their bets by concentrating on 3PLs specializing in growing segments, such as those serving e-commerce customers and final mile logistics providers. Another area that has recession resilient characteristics is consumer staples, such as food, beverage and household goods. Cold chain logistics is an area that should continue to hold up well during a potential downturn, as demand for these essential products and services remains robust.
“Even when an economy faces a downturn, consumers still need to eat and the long term trends and demand for fresh foods requiring temperature control remains attractive,” says Hopkins. “And demand for cold chain warehousing and transport solutions in the temperature controlled segment remains high.”
According to Hopkins, 3PLs reigning in their global supply chains in reaction to trade tensions are not likely to be as attractive as those willing to reconfigure their networks.
“While moving some sourcing to Mexico might make sense for some manufacturers, we see more reliance on Southeast Asia as an alternative to China,” he says. “The most diversified 3PLs are always going to be better off and can weather disruptions more effectively.”
Meanwhile, the “middle market” remains resilient. Hopkins says management strength and “a deep bench” is important for strategic buyers and more acutely for private equity buyers who are not in the business of running their portfolio companies.
“Finally, we would advise managers to be mindful of the upcoming elections, and time their sale launches accordingly,” says Hopkins.
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