
The third-party logistics (3PL) sector sentiment has remained subdued with freight headwinds weighing on revenues, profits, and merger and acquisition (M&A) activity since mid-2022. However, green shoots in freight volumes and pricing have emerged, with high frequency indicators, including steady growth in U.S. tender rejection rates, showing an improvement in freight market conditions since September (Q4 average rate up 32.6% quarter-over-quarter).
“The freight recession has lasted longer than expected, and M&A transaction volumes have disappointed as a result. Buyer appetite (strategic and financial) has remained mostly healthy, but it has been difficult getting sellers to the table, many with profits down materially from 2021-2022. The backlog of sellers at higher profitability levels is strong. When improved freight market dynamics start translating into improved profitability, deal activity will pick up markedly,” says Gordon Mackay, managing director, Capstone Partners.
Key takeaways:
- The weak freight market conditions continued to weigh on M&A activity, with 2024 3PL M&A volume down 13.4% from 2022. Despite a weak freight market environment, transaction activity began to accelerate in the second half of 2024, driven by shareholder pressure at public companies to shed underperforming segments; strong strategic interest in the sector and in platforms insulated from the broader freight cycle; and distressed digital platforms selling or realigning operations.
- Looking into 2025, optimism for improved transaction activity is building. Easing interest rates, strong financial markets and knock-on effects to consumer spending and industrial activity will likely drive increasing freight volumes and support more broad-based 3PL M&A transaction activity in the coming quarters.
- Fourth quarter 2024 showed some improvement in freight conditions as retailers and manufacturers have attempted to restock inventories and accelerate imports ahead of potential tariff increases. Healthy increases to consumer e-commerce spending and growing U.S. and Mexico cross-border trade have been important drivers of sector growth.
- In 2024, 3PL M&A activity increased 23.4% year-over-year (YOY), buoyed by strong strategic interest in the sector and participants‘ efforts to realign operations amid a down market. Public strategic deal activity remained stable YOY, primarily consisting of transactions that focus operations around profitable and core services.
- Private strategic deal activity picked up in 2024, rising 23.5% YOY. Whereas public players have pursued M&A to reorganize operations around core services, private strategic buyers have acquired to grow scale, geography, and customers in preparation for an eventual market recovery.
- Interest rate reductions have also helped fuel increased 3PL M&A activity, enabling financial sponsors to fund acquisitions through cheaper debt capital. This largely materialized in heightened add-on acquisition activity, which doubled YOY from 10 deals in 2023 to 20 in 2024.
- 2024 public strategic M&A activity within the logistics ecosystem was characterized by a handful of highly-publicized deals, a trend that started in late 2023 as sector pressures began to intensify. Portfolio realignment strategies have helped public players manage shareholder growth expectations by aligning operations around profitable core services.