logistics industries

In logistics industries, who does the deal makes a difference

By Neil Collins

June 2012 Acquisitions in the logistics and transportation services sector have increased in the first half of 2012, and the pace is expected to stay robust. Buyers and sellers alike should enter deals forewarned: they’ll want to secure an investment banker with the experience, skills, and personal characteristics fitted for this highly fragmented and diverse industry.

Despite a sputtering economy, acquisitions in logistics and transportation services are speeding up.

According to Thomson Reuters financial data, deal activity in the sector in the first three months of 2012 was higher than in any quarter of 2011. Greasing the wheels are several factors: family owners looking to sell, a looser credit market for financing, and strong corporate balance sheets that enable companies to roll up desirable acquisitions.

The difference between a successful transaction and a deal that turns sour or produces little value, however, can turn on an unlikely player: the investment banker.

How should buyers or sellers size up their potential deal maker? Based on Korn/Ferry International’s experience working with the leadership teams of logistics and transportation companies of all sizes, we have identified several attributes to seek in an investment banker: experience, business and technical skills, and certain personal characteristics.

Experience: The best teacher in a complex environment In an industry as complex and diverse as logistics, there is no substitute for experience. The fragmented state of the industry—no single company controls more than 6 percent of the U.S. market—adds up to an enormous number of companies and potential M&A opportunities, but also a greater likelihood of missteps for the uninitiated.

Similar promise and pitfalls lurk in the sheer diversity of an industry that comprises integrated supply chain services, truckload and less-thantruckload carriers, maritime shipping, transportation leasing, railroads, air cargo, custom brokers, and other non-asset based transportation services. In the face of such complexity, generic investment banking experience won’t suffice. Whether the investment banker is working on the buy or sell side, he or she should have the following experience and attendant knowledge: Multiple years analyzing and following numerous logistics and transportation companies. On the buy side, genuinely knowledgeable deal makers know which, among the vast array of companies out there, are the stars, the dogs, and the underperformers with potential. On the sell side, they appreciate the full value of a star and are able to communicate it to buyers, and they are able to help underperformers put into place people and processes that improve performance before a sale and thereby increase value.

Multiple deals closed in the space. Highly experienced deal makers may have closed thirty-five or more M&A transactions in the logistics space and managed numerous public equity offerings. The lessons learned and best practices from those deals can be a springboard for creativity when the going gets tough in a negotiation.

Relationships with key players. Experienced deal makers know the top executives in the sector. This knowledge of company talent enables the investment banker to provide more valuable and nuanced advice to buyers and to help potential sellers improve their performance in advance of a sale. Relationships also extend to other critical players—including private equity executives, management consultants, lawyers, and associates—who may be called on for advice.

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Business acumen: Making a deal work on many levels The business and technical skills that outstanding investment bankers have can be summed up in a sentence: They are adept at evaluating and executing mergers, acquisitions, and divestitures; they have mastered the financial engineering behind each; and they know what makes a good deal on both the buy and sell sides. That overarching description comprises a great many specific abilities, which ideally are tailored to the logistics sector. They include: Superior analytical skills. Such skills are of course indispensable for valuation and due diligence. What are the financials, the competitive position, and the chances for success? Answering those questions comprehensively requires a thorough understanding of logistics business models and the often complex conditions of competition. For example, it’s difficult to see how an investment banker with less-than-extensive knowledge of the sector could adequately evaluate a non-asset based business, such as a transportation broker.

Analysis should also go beyond the numbers. What do knowledgeable people say about the company? Will it be a good cultural fit? Sellers are often as interested in those questions as buyers. The owners of family businesses who have built up good will in their community worry about the damage the wrong acquirer could do to that legacy; they may be looking not for the highest bidder but for the right bidder.

Legal. At some point in any deal, of course, lawyers will have to nail down the specifics in carefully drawn language and documents. But investment bankers should have enough legal knowledge to keep negotiations from getting bogged down. Further, because the logistics industry is subject to heavy regulation and legal constraints, especially when it comes to crossing borders, knowledge of relevant international law and the law of foreign jurisdictions is indispensable for an acquirer attempting to add a component to a global network.

Adroit negotiating skills. There are no statistics on how many deals break down, with one or both parties walking away in frustration, or whether it happens more or less often in transportation than in other industries.

Sometimes, of course, an impasse stems from unreasonable demands or expectations of one or both parties. But it is sometimes the fault of an investment banker with poor negotiating skills who is unable to identify acceptable trade-offs, keep negotiations on course no matter how sticky, and get everyone to yes.

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In the transportation space, negotiating can be particularly difficult for investment bankers who aren’t familiar with both the hands-on, concrete culture of transportation executives or family owners, and the more abstract world of financial buyers like private equity investors.

A deal maker on the buy or sell side who cannot bridge those cultures in negotiations can hinder progress.

Personal characteristics: Cut from the same cloth as LTS executives Business skills such as the ability to analyze cultural fit and negotiate among disparate parties ultimately emerge from the personal characteristics of the deal maker. Yet those often get the shortest shrift in considerations of which investment banker to engage. In logistics, with its distinctive culture and folkways, a number of personal characteristics can be decisive in reaching a value-creating deal. They include: High intellectual intelligence. This encompasses not only highly demanding disciplines such as valuation and financial and competitive analysis, but also the ability and desire to understand the industry and the operating specifics of a logistics enterprise. It is this intellectual grasp and drive, demonstrated early in a career, that often explains how a neophyte was given his or her initial opportunities to get experience in doing deals.

High emotional intelligence. The ability to read other people’s emotions and respond to them is indispensable in bringing two sides together. For example, the emotional complications of selling can be acute for owners of privately held companies. They have labored long and hard to grow the business and want to see it continue to thrive as a living testament to their life’s work. Whether working on behalf of that owner or of an acquirer, investment bankers who are sensitive to such emotions stand a much better chance of success.

Adaptability. Outstanding investment bankers specializing in this sector are as at home in the cafeteria at a trucking company as in the boardroom of a private equity firm. They instinctively know how to develop strong rapport with entrepreneurial owners and with rigorous financial players.

In terms of personal style, they are the antithesis of the stereotype of the highflying and remote investment banker—exhibiting the same down-toearth, direct qualities widely found among logistics executives themselves.

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Drive. What those who specialize in logistics and transportation share with most other investment bankers is an unrelenting drive to complete a genuinely value-creating deal. Many work on a contingency basis, getting compensated only when the sale or merger is consummated, an arrangement that reinforces their already considerable motivation to see a deal through.

Taken together, the picture that emerges is of a rare individual of integrity who is intensely smart and emotionally sensitive and responsive, someone who is driven to succeed and possesses the creativity to clear away obstacles that less inventive investment bankers might find insurmountable. Such personalities, remarkable as they are, may not be hard to identify among the class of investment bankers generally. But add to that profile the requirements of extensive industry experience, specific industry knowledge, and broad and deep business and technical skills, and the universe of outstanding performers shrinks dramatically. With the expatriation of many specialist investment bankers from financial services providers into CEO, CFO, and corporate M&A roles, the pool of suitable advisors continues to drain. The very best who remain are in high demand, but also worth the effort to seek out.

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Neil Collins is a Senior Client Partner in Korn/Ferry International’s Atlanta office. He is also the Global Sector Leader, Logistics & Transportation Services, within the Firm’s Global Industrial Market.

About The Korn/Ferry Institute The Korn/Ferry Institute generates forward-thinking research and viewpoints that illuminate how talent advances business strategy.

Since its founding in 2008, the institute has published scores of articles, studies, and books that explore global best practices in organizational leadership and human capital development.

About Korn/Ferry International Korn/Ferry International is a premier global provider of talent management solutions, with a presence throughout the Americas, Asia Pacific, Europe, the Middle East and Africa. The firm delivers services and solutions that help clients cultivate greatness through the attraction, engagement, development and retention of their talent.

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© 2012 The Korn/Ferry Institute