2007 Logistics Trends
Private equity firms that invest in logistics businesses face some significant market challenges in 2007.
Following several strong years of conditions favoring logistics providers, several key segments of the logistics market are shifting to the buyers’ advantage in 2007. Demand is softening for many modes of transportation, following recent capacity increases. Furthermore, fuel prices continue to be a major cost for logistics providers and have not stabilized.
Acquisition Targets
Private equity firms who are evaluating investments in logistics businesses should conduct thorough diligence on management’s projections for revenue and margins, as well as their assumptions on pricing. Extrapolating recent pricing trends may not be accurate for future projections.
Logistics Portfolio Companies
Logistics companies may face margin pressure and customer churn as their customers get more aggressive in using their leverage.
Portfolio company management teams will be making some tough choices at the margin on how they price business and how they manage their sales forces. Are they getting maximum productivity from the sales force? This will be important in a more competitive environment. How prepared are their sales reps, who have enjoyed a couple of years of pricing power, to deal with the new environment? If the market opportunity is declining, do they have an appropriate pricing strategy? Are pricing policies fit for the new environment? Does management have the right balance of allowing reps to make field judgments (creating a speed advantage in the market), versus routing pricing decisions back to an executive review (stemming the tide of price erosion)? Are the sales reps armed with the right tools and information?
Manufacturing and Distribution Portfolio Companies
Portfolio companies with large logistics budgets have a window of opportunity to pursue cost reduction opportunities. Management teams that are abreast of market changes and aggressive in pursuing opportunities may be able to favorably affect 2007 operating results and position for further gains in 2008.