“Buy-and-Build” is the new strategy to deal-making and scaling up

As institutional investors are piling into alternative investments, more and more ‘dry powder’ is available with private equity players, seeking profitable deployment. Freight brokerages have attracted attention, and the result is an industry transformation.

Private equity groups have bid up freight brokerage EBITDA multiples in the range of low to mid-double digits (12-14x). This means other industry participants, such as logistics players looking to strategically scale up, are crowded out due to pricing.

Buy and build is the new mantra in third party logistics (3PL)

The new multiples mean even PE players need to change their approach to deal-making in freight logistics. The new strategy is “buy-and-build,” according to the Global Private Equity Report 2019 by Bain & Co.

“A growing number of [general partners] are facing down rising deal multiples by using buy-and-build strategies as a form of multiple arbitrage – essentially scaling up valuable new companies by acquiring smaller, cheaper ones,” says Bain.

GlobalTranz a great example

Consider this. In June 2018, Providence Equity Partners sold GlobalTranz, a top 3PL provider, to The Jordan Company for about $400 million. In March 2019, Providence bought back GlobalTranz for an undisclosed amount.

What happened at GlobalTranz in between? Acquisitions (completed 9 since 2017) and a doubling of EBITDA.

According to sources, Jordan was able to generate an over 100% return in less than a year.