The past few years have tested the mettle of the finance leaders who work in the logistics industry. Against the background of an evolving trade landscape, pandemic disruptions continued to impact supply chains well past lockdowns, and then inflation and interest rates began to rise just as the dust was starting to settle. These shakeups and more have kept logistics CFOs on their toes, and while the industry saw a slowdown of strategic dealmaking in FY 2023, the market is beginning to stabilize and there are signs that M&A activity is accelerating again. For industries in flux or undergoing transformation — like shipping, logistics, and transportation — the right strategy can mean opportunities are within reach.
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M&A in a Consolidating Industry: What's Driving Dealmaking in Logistics?
What made mergers and acquisitions deal pipelines a few years ago is the same thing that will help it rebound this year and beyond: economic stability and affordable capital. A trend towards both helped close out Q4 2023 with a 41% increase in M&A deals overall and starting the year off on a positive note for dealmakers, according to McKinsey.
Get the Case Study: How a National Logistics Leader Maximized Growth & Efficiency
That's good news for logistics CFOs and other finance leaders looking to turn an eCommerce boom, supply chain optimization mandate, and ESG initiatives into an opportunity to add value or accelerate growth. This all comes just as new technologies are emerging for better data-driven decision making across the supply chain and midsize industry fragments look for ways to create economies of scale and increase their bargaining power through consolidation.
Master Due Diligence to Drive Successful Outcomes
Without thorough and thoughtful due diligence, mergers and acquisitions with promising potential to deliver financial value fall apart or fail completely at a rate the Harvard Business Review puts at somewhere between 70% and 90%. A lot of that comes down to rushed or incomplete due diligence, whether that's a total mismatch in corporate culture or a failure to uncover flat-out fraud in financial reports.
Granted, due diligence — even financial due diligence (FDD) — is not an audit and can't take the place of one. But due diligence mastery on the buy-side can set logistics players up for dealmaking success, accelerating growth and sharpening your competitive edge in a market that's just beginning to heat up. Here's what you'll need to do it right:
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An expert team: Assemble a dedicated team of finance and accounting experts that can take on pre-M&A work without sacrificing the quality of everyday work in the finance function or the due diligence process itself. Whether this group is internal or external, bringing top talent to the table is critical.
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An aligned focus: Identify trends impacting your niche — last-mile delivery or warehouse automation for instance — to help assess the target's position and potential for future growth within the broader landscape.
Look beyond headline financials for ways your company's strengths complement the target's weaknesses to operate more efficiently. Prioritize areas like route optimization, warehousing capacity, and technology integration.
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A plan of attack: Begin by creating a comprehensive checklist that outlines the information you'll need from the target company. There's a lot of data to go over, and a checklist ensures nothing slips through the cracks.
Don't wait for a signed letter of intent (LOI) to start gathering the information on your checklist. Requesting financial statements, contracts, and other relevant data early streamlines the process and can provide a cushion if you encounter bottlenecks later.
Consider adopting a phased approach that manages time wisely for both your team and the target company's. Pull in readily available information first and base your further requests on these initial findings. Prioritize critical areas to avoid delays while maintaining a comprehensive review and keep communication open with the target company to better anticipate (and overcome) potential roadblocks.
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A fine-toothed comb: Once you have the information you need in hand, don't just accept surface-level financials. Be prepared to analyze trends in revenue, profitability, and cash flow. Look for one-time events or adjustments that could distort the true picture.
From there, stress-test any financial forecasts provided by the target company. Run your own models that consider different economic scenarios and account for factors like fuel prices, labor costs, and potential disruptions in the global supply chain.
Pay special attention to the target's information technology (IT) framework. Logistics heavily relies on efficient information systems. Get a clear picture of the target's IT infrastructure, including security protocols, data integrity, and future integration costs.
Avoid Missed Opportunities by Asking Essential Questions
On average, dealmaking due diligence takes anywhere from six to 12 weeks to complete. For internal teams that are still trying to manage daily duties and the monthly close, that can represent a significant chunk of time and attention. In reality, that can be an abbreviated timeline to operate on, especially when the end goal is to gather, thoroughly scrutinize, and understand a target's operational, legal, and financial documents and position. It's important to make the most of that time and ask the right questions so that nothing falls through the cracks:
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What does the target company's corporate culture look like? Does it align with your own? What do turnover and retention rates look like within the organization?
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Are there potential liabilities within the target company's employee benefit structure?
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Who are the key personnel crucial to the target's operations? How will you retain them?
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Do you understand the obligations of any vendor and customer contracts you would be acquiring? How will renegotiating or terminating these contracts, if necessary, impact profitability post-merger?
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Are you confident that you understand any long-term lease agreements currently in play? Are any redundant?
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Have you assessed the target's customer base? How strong is it, and what are the churn rates? Do you foresee any issues with customer contracts and long-term revenue stability?
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Are there environmental liabilities or outstanding regulatory compliance issues you'll need to mitigate or clean up in an acquisition? How disruptive would it be to do so, and what will that cost?
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How secure is the target's cybersecurity position? Will it require upgrades or updated insurance policies to strengthen?
Get the Edge in Logistics M&A Dealmaking by Leveraging Outsourcing & Technology
It's not uncommon to bring a third party into the financial due diligence process in order to limit the amount of time and attention internal teams divert away from their own work. Still, you and your team will likely be faced with the prospect of handling an influx of financial information and documentation, working within disparate processes to do it, all while keeping your own company's finance function running smoothly and effectively.
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Keeping an inherently disruptive process from disrupting accounting work and finance strategy is challenging for even the most capable CFOs and finance leaders — especially when you'll have to pull in key strategic players — controllers, for instance — from your own team to do it. There's nothing that can dull a competitive edge faster than an overburdened, burned-out accounting team that's running two consecutive fire drills at once, sometimes for months at a time. Honing your own edge will require leveraging the right combination of tools, talent, and expertise.
Leveraging Emerging Technology in Logistics M&A Financial Due Diligence
Logistics companies with a mandate for more strategic operational decision-making and buyers in an M&A deal are both increasingly turning to the same thing for better outcomes: data.
Better data collection and analysis tools come with the upside of maximizing the utility of raw data for both parties, and the very real drawback of adding to the FDD workload for both parties. Moreover, the potential to slow the process down and siphon off internal attention to core work in the finance department comes packaged with the need to transfer data between parties securely.
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Secure, cloud-based virtual data rooms (VDRs) can help dealmaking parties expedite the process safely, while automation tools that can extract and process data for the required analysis, widening or eliminating bottlenecks. Buy-side CFOs with enough resources and skills at their disposal can also turn to data analytics platforms to assist to identify trends and potential risks or flag anomalies quickly.
Newer technologies powered by artificial intelligence (AI) can even simplify contract review and document processing by scanning them quickly and determining what areas exist, if any, for manual review, or even identify potential liabilities. Even popular GenAI tools have potential to assist along the edges of M&A dealmaking:
I gave GPT-4 a prompt to help me identify a biz to buy for the right price and right terms
— Jordan Evans (@JordanPEvans) March 21, 2023
Using AI as an expert M/A advisor in SMB business acquisition
Can AI be a cheat code to buy a biz?
Follow along 👀#AcquireSMBGPT#SMBtwit pic.twitter.com/jkjyOHw3eh
Streamline FDD in Logistics Mergers with a Virtual Accounting Team
There are two major inefficiencies that crop up during logistics M&A financial due diligence. The first are the disparate processes for completing manual, repeatable tasks necessary to complete the FDD itself. The second comes in the form of reduced team capacity to do the accounting work that needs to continue, uninterrupted, outside of it.
CFOs and finance leaders that plan to take advantage of a warming logistics M&A market can eliminate both inefficiencies proactively by bringing in the additional skills, expertise, and resources that a virtual accounting team can provide. By partnering with a provider that can build an offshore team to bridge resource gaps or take manual rework off of your accounting team's plate, you can increase your deal capacity, reduce FDD errors, and get a head start on the process optimization and universalization tasks you'll need post-merger for faster synergy realization.
Get the Toolkit: Virtual Accounting Talent
Qualified virtual accounting teams should work on your time zone and be technology-agnostic to reduce the time between onboarding and operational effectiveness. Especially in lean labor markets, having the accounting expertise on hand without having to tap internal teammates can keep your finance function running efficiently without overburdening your hard-won and hard-to-replace talent just when you need them most.
For almost forty years, Personiv's customized solutions have delivered quality teams of highly skilled professionals that function as an extension of stateside teams. As a tech agnostic provider, we can perform data capture from within disparate systems pre-merger, then optimize and universalize them to secure long-term value post-merger, too.
Our mandate to "never stop improving" means we heavily invest in the top-tier talent we recruit to provide unparalleled quality that delivers real efficiency improvement with tangible cost savings.
See how our process works and how our people-powered solutions give clients across diverse industries the winning edge, then contact us to see what we can build together.
