Logistics companies exploring sales as sector's growth slows

Several logistics companies are seeking buyers, a sign that stagnant shipping demand is driving a new wave of consolidation in the industry.

Philadelphia-based logistics firm BDP International, Inc. and Pilot Freight Services, a Lima, Penn.-based freight forwarder, are both exploring sales, people familiar with the matter said. The companies would likely fetch under $500 million each, though Pilot is considering selling only a stake, the people said. Other logistics companies around their size are likely looking for buyers as well, they said.

The offers signal a pick up in deal activity in the sector following a slowdown in recent months. To help navigate an unpredictable freight market, many companies have been making deals to expand into new business lines, allowing them to sell lucrative packages of transportation services to retailers and other shippers.

"Growth is always important and organic growth is difficult right now," said Daniel Herron of Herron & Associates LLC, a financial advisory firm specializing in logistics mergers and acquisitions. "Money is not expensive to borrow and if you are good at [mergers and acquisitions], it is very efficient."

Pilot, a second generation familyrun company, arranges air cargo shipments and performs ground transportation services. The company is expanding its services catering to e-commerce shippers, including full-service home deliveries for appliances, furniture and other large online orders.

Richard Phillips, Pilot's chief executive, said the company has been the subject of sale rumors "for a long while now, and we don't respond to them."

BDP, which specializes in managing shipments of chemicals, has been "receiving interest in our properties," a spokeswoman said. She added that "there are no foregone outcomes at this time."

Andrew Schmahl, of PricewaterhouseCoopers, said the industry could see a new wave of deals to come as companies look to offer more comprehensive transportation solutions.

"One of the biggest trends I've seen is the expansion of what a transportation company wants to be for its customers," he said. "You need to have broad geographic coverage, you need to have a range of service options, and you need to be able to pull those together and essentially customize [solutions] for customers."

Chicago-based Hub Group, Inc., which operates a rail-based shipping business, has said it is looking to make deals to expand into airfreight forwarding and add to its trucking and other logistics services. Earlier this year, the company hired Geoff DeMartino, a former banker, to head its acquisition team.

Mr. DeMartino said Pilot is an example of the type of company "we would be looking at, or have interest in."

Pilot is strong in a mode of transport where Hub doesn't already compete, Mr. DeMartino said, adding that "lots of other smaller companies" with less than $10 million in earnings before interest, taxes, depreciation and amortization are hitting the market. "Hub is considering everything that fits its criteria," he said.

Logistics and transportation companies completed 48 deals in the first quarter of 2016, down from 56 a year earlier, according to PwC. The value of those acquisitions rose 26% to $37.6 billion this year, though some of the largest deals involved ports and other infrastructure, rather than the freight brokers and transportation companies that drove activity in 2015.

The aggressive growth strategies come with risks. XPO Logistics, Inc., one of last year's biggest acquirers, has said it is holding off on deals to focus on integrating its purchases after making more than a dozen acquisitions since 2011. Last year, XPO Logistics, United Parcel Service Inc. and DSV A/S were among the companies driving $172.7 billion in deals, according to PwC. XPO Logistics shares are down nearly 50% in the past year.

Another acquirer, Roadrunner Transportation Services, Inc., began as a regional truck operator and now has 25 subsidiaries, drawing concerns from some analysts over its ability to grow with so many operations to control. The company's shares are down more than 70% over the past year.

Roadrunner executives also say they are unlikely to make more acquisitions this year, but haven't ruled out the possibility. (WSJ)