Fleet and Logistics Industry M&A Heating up despite Mixed Economic Signals

Notable deals in 2019 to date include Michelin’s acquisition of Masternaut—its third significant telematics purchase—and competitor Bridgestone’s purchase of TomTom Telematics for US$1 billion. The companies that were acquired were among the twelve largest global commercial telematics players. Additionally, the German Tier-1 company ZF acquired not only WABCO for US$7 billion but also a 60% share of 2getthere, a Dutch automated-transport company. Less known but just as significant in scope is Denmark-based Third-Party Logistics (3PL) company DSV’s acquisition of Swiss-based 3PL and airfreight forwarder Panalpina for US$4.6 billion, making it a top five global 3PL. Further east, market leader Alibaba purchased a 14% stake for US$693 million in STO Express Tracking, China’s fifth largest carrier.

Other commercial telematics acquisitions include Omnitracs’s purchase of fleet management software provider Blue Dot Solutions; E2open’s acquisition of Amber Road for US$425 million; and Geotab’s acquisition of BSM Technologies (who are focused on service, rail, and government) for approximately US$87 million.

Corporate strategies include market expansion, and they can be a competitive response, as seen by 18 months of record Mergers and Acquisitions (M&A) and strategic reshuffling by Michelin and Bridgestone, who have moved into fleet telematics and recurring service opportunities. The companies expect to gain more data to monetize and expand the geographic footprint of their acquisitions. ZF’s now-successful purchase of WABCO is a part of their “next-generation mobility strategy” that lessens dependency on automotive and increases competency in the commercial and Advanced Driver Assistance Systems (ADAS) space. The acquisition of 2getthere extends capabilities in both driverless and electric mobility, and this can extend into commercial transport.

Scale is a major motivator for the DSV-Panalpina merger—one of the largest known logistics deals to date this year—which is expected by the fourth quarter. This merger will create a combined pro forma revenue of nearly US$18 billion. The new company is expected to promote cross-selling and enhanced service offerings, and DSV should benefit from Panalpina’s expertise in both air and sea freight forwarding.

Alibaba’s investment mirrors that of Amazon’s in that Alibaba is gaining greater control over their logistics footprint across modes and in direct competition with their carriers. This is expected to continue and was noticed for the first time in Amazon’s 2018 10-K filing.

Both scale and differentiation are driving a wedge among the largest and most valuable providers and those that are faced with commoditization and lower subscription/service revenues. One indicator of the transition is that U.S. companies in the first quarter spent more on software than on Information Technology (IT) equipment. Year over year, the former grew 11%, but the latter only grew around 1%–4%. Acquisitions, as well as expansive investments in startups with differentiated technology (“as a service” offerings, ADAS, electrification, machine learning, etc.), increasingly favor fewer companies. The competition—including software platforms that provide a network effect (where adding users increases the value of the network to all users)—is finding it increasingly difficult to level the playing field.

ABI Research’s annual Commercial Telematics Vendor Ranking (CA-1250) Competitive Assessment finds that four companies have crossed the one million threshold of global active commercial subscribers: Verizon, Geotab, Trimble, and Omnitracs. China is leading the Group of Seven (G7), who are following close behind with 937,000 subscribers. The next four providers all have around 800,000–850,000 subscribers, but then company subscription drops by nearly 50% for the next the long tail of suppliers. ABI Research is also developing analyses of key providers, trends, and disruptions in the air freight industry to complement their road, rail, and maritime research.

After significant consolidation nearly three years ago, the fleet and logistics market appears to be shifting again; it is being influenced by profit pressures, software displacement, scaling necessities, and a cloudy global economic picture and requires a strong value proposition for further growth.