The majority of transportation and logistics executives expect their businesses to grow by more than 10% in 2020 and say they are “very likely” to consider a merger, acquisition, investment or other transaction in 2020, according to survey data gathered at BGSA’s annual conference.
Last week at The Breakers in West Palm Beach, Florida, BGSA mergers and acquisitions advisor and Cambridge Capital venture capitalist Benjamin Gordon hosted supply chain leaders at his advisory firm’s annual conference.
BGSA’s conference is closed to the press to foster a more frank atmosphere among the 250 guests, the vast majority of whom were CEOs and presidents, but Gordon spoke to FreightWaves by phone about what he learned.
One of the highlights of the event was undoubtedly XPO Logistics (NYSE: XPO) CEO Brad Jacobs’ town-hall discussion when he fielded unscreened questions from the audience about a wide variety of topics, including the potential sale of multiple XPO business units.
“Brad was very candid in an unscripted Q&A session with the audience,” Gordon said. “He offered very powerful personal stories about his leadership journey and what he’s learned and what he’s looked for and discussed his rationale for pursuing the divestitures. The insight was more about understanding his thought process on the carve-outs and his outlook for what he expects will happen.”
Jacobs had spoken previously in public about XPO’s “conglomerate discount” — the idea that shares of XPO are not correctly priced by the market in part because investors have a hard time judging the value of all of its complex moving parts, which include international freight forwarding, freight brokerage, intermodal, final mile, warehousing, and less-than-truckload operations.
“His job is to maximize value for shareholders, but the market is giving him a multiple around 9x, so sum-of-the-parts analysis implies just a 5x multiple for the non-LTL businesses where they should trade for more than double that,” Gordon explained. “Brad gave, fundamentally, unsentimental description of the business he had built and how to maximize the value.”
One of the most valuable parts of the conference for Gordon is the ability it gives him to test his base case assumptions about the macroeconomic backdrop and industry growth against quantifiable feedback from hundreds of top executives.
As noted above, the majority of executives said they were optimistic about growth and ready to execute deals. Fewer than 10% expected the supply chain industry to experience negative growth in 2020, after growth of under 5% in 2019.
Gordon said that despite worries about an industrial recession globally and in the United States, conversations with companies that had exposure to the industrial economy were positive.
“We saw companies like Maersk, FedEx, Werner, all with exposure and insight to the industrial side, and nothing I heard indicated fear of an industrial contraction,” Gordon said. He pointed out that in addition to widespread expectations for industry growth, there are favorable financial factors like low-interest rates for corporate debt that will encourage companies to expand.
Gordon was particularly bullish on what he called “e-commerce ripple effects,” including micro-warehouse facilities, fulfillment, last mile, reverse logistics and the maturation of technology.
The future of growth equity in supply chain businesses will look more like private equity than venture capital, Gordon predicted.
“It will be more about scaling up something that works rather than making a string of bets on unknowns,” he said. “I expect we will see more capital pouring into companies with favorable unit economics and real customer traction that are solving real problems.”
Amazon was also a major topic of discussion at the conference; the trillion-dollar e-commerce retailer’s aggressive expansion into supply chain logistics has made it a ubiquitous talking point. Because Amazon is one of the world’s most innovative companies, other supply chain participants are forced to monitor it, forecast its moves and reckon with the effects.
Gordon said Guy Bloch, CEO of delivery logistics platform Bringg, articulated a uniquely constructive view of Amazon, and how to respond to it, at the conference.
“Bloch said it was like Android versus iPhone,” Gordon recalled. “There’s no one company that can take on Amazon, but if you take an open ecosystem approach, collectively the market could form a competitive alternative. This time next year will be interesting to compare. If that alliance of open systems partners come together, then who knows? Maybe next year we’ll be looking at a very different supply chain market instead of a fear of Amazon disrupting everything — maybe a shifting competitive landscape that produces more opportunities for those companies who become part of the open ecosystem.”
his week, the 14th annual BG Strategic Advisors annual conference, BGSA Supply Chain Conference 2020, kicked off at The Breakers in Palm Beach, Fla. This event positions itself as the “only CEO-level event focused on all segments of the supply chain” and takes a deep dive into myriad facets of the industry, including technology innovation, global growth, the state of logistics, the state of trucking, and dealmaking spotlights, among others. Logistics Management Group News Editor Jeff Berman recently caught up with Ben Gordon, Managing Partner of Cambridge Capital, an investor in niche supply chain leaders and also Managing Partner of BGSA Holdings, a leading mergers, and acquisitions advisory firm focused on the transportation, logistics, and supply chain technology sector, about this week’s conference and the current state of supply chain and logistics M&A activity. A transcript of the conversation follows below.
Logistics Management (LM): What are the big focus areas of this week’s BGSA Supply Chain conference?
Ben Gordon: The big topics, of course, are capital markets and technology. There are lots of M&A and investment topics to discuss and on the technology side I think every logistics company is worried about how to make sure they use technology to stay competitive, and every technology company wants to make sure that they can win logistics companies as customers and allies. It is a very interesting story on both sides.
LM: A few years back, you talked about the concept of “service convergence,” in which one company acquires another to get something it needs as a service offering for its customers. Does it still serve as a good working theme or has the script shifted in different ways for various reasons?
Gordon: Convergence, which was a huge driver of so much of the M&A over the last decade, probably reached its crescendo with XPO Logistics.
LM: In what ways?
Gordon: The premise of XPO was to buy and combine great services in different areas of logistics so whether that is a truck brokerage, intermodal, warehousing, value-added services like brokerage as well as managed transportation. Those are all key elements, and I think XPO’s premise was to buy, integrate, cross-sell and achieve convergence. I think they did a good job of it. If you look at the actual data and look at how many customers they were able to achieve cross-selling benefits with after acquisition, I actually think they did pretty well. The fact that [XPO Chairman and CEO] Brad Jacobs is exploring breaking it up suggests it was not as integrated as we thought….but it is all speculative as at this point it is just an announcement. It may be that years from now we will look back on the history of U.S. logistics, and we find that 2020 was the peak of convergence…and that the XPO divestiture, if it indeed does occur, could mark the transition point.
LM: How would it mark the transition point?
Gordon: It is not just because of XPO. I think it is also that it has been harder than many people expected to achieve cross-selling. One classic example was when Wilpak was sold to Jacobson in May 2006, it marked a combination of contract packaging with contract warehousing. That seemed like a classic fit for a convergence play because you had two sets of services—in packaging and warehousing—and you could go to the same customer and in some cases, you could go to different locations and simply be eliminating shuttling costs by co-locating those services. That kind of convergence seemed like a natural fit. Similarly, it felt like a natural fit to combine truck brokerage and intermodal, as was the case when XPO acquired Pacer, which was easy.
LM: What are some other examples?
Gordon: A combination of warehousing plus freight forwarding or Customs brokerage. When Ozburn-Hessey bought Barthco in July 2006, it was an example of a convergence effort that, in the end, was not as successful of some of the other examples we talked about. It was not because of the people, it was because those services are harder to bundle. The convergence that has driven so much of the M&A over the last ten-to-15 years was real, but I think some of it proved to be a bridge too far.
LM: Looking at the logistics and freight transportation markets now, there are a lot of new players that have made significant entrances and inroads that were not in existence even a decade ago or less. While these companies are quickly becoming established, they are not making M&A deals, it seems. Will that change over time and can a smaller emerging company do, for example, what XPO has done on the path to growth?
Gordon: Absolutely. In fact, some of the most successful companies that I know are taking pages from the XPO playbook. I look at GlobalTranz. GlobalTranz has bought 11 companies over the last 2.5 years. The success of that will be measured probably a year or two from now. Fundamentally, they have been doing acquisition-like growth. And, like XPO, it has been very aggressive and systematic. At our conference last year, I did an interview with Bob Farrell, GlobalTranz chairman, about how he did it with a very systematic approach. On the other hand, its approach is narrower than XPO, because it is really only buying brokerage and managed transportation and is not doing the broader plays XPO did with international- or tracking-based deals. I would say GlobalTranz borrowed from the XPO playbook, in terms of an aggressive, repeatable, systematic acquisition plan, but it was narrower in the scope of what it did. It is too soon to declare total victory on that, but historically it has been very successful with that strategy.
LM: Looking at the nature of different deals, many large companies made tuck-in acquisitions to fill a specific need or niche. What is the current state of these types of deals?
Gordon: I think there has been a steady diet of tuck-ins, but they have been quieter and have generally involved private companies as opposed to public companies. I have not seen larger companies like C.H. Robinson or Echo Global Logistics or some of the others pursue tuck-ins lately. But GlobalTranz is an example having just acquired Cerasis, and Transplace is another with its recent acquisition of LaneHub. Sale numbers were not disclosed for either deal, but I can tell you they were both well below ten percent the size of the acquirer. So, if you are Transplace buying Lanehub, you are adding a great collaboration network of about 150 shippers, 150 carriers, and $23 billion in truckload spend. They are getting network reach, but it is a relatively small and successful acquisition. It does not have to go raise financing or worry about the risk of making a gigantic acquisition. It is a classic tuck-in acquisition, as is the GlobalTranz-Cerasis deal. With the Global Tranz-Cerasis deal, most of that deal fit the [tuck-in] profile, in terms of being below ten percent the size of the acquirer, easy to integrate, and being consistent with the overall strategy of the business and therefore relatively simple and consistent with the rest of the service footprint.
LM: What is a good example of a larger company making a tuck-in acquisition?
Gordon: When Echo bought Command a while back, that was viewed as transformative and big. And you could argue in hindsight that Echo, which has bought close to 20 companies, has had great success with small tuck-ins. Command was a harder deal because of the magnitude, the purchase price, and the integration requirements. It can be successful either way, but I think we have seen more tuck-ins than transformative acquisitions over the last year and that is probably a good thing for the likelihood of success.
Hub Group acquired CaseStack in December 2018 for $252 million, MODE in August 2018 for $258 million, which were bigger than your average small tuck-in, but Hub Group’s total enterprise value today is $2 billion and has gone up a little bit since the time of those deals. These deals were in the 10%-to-20% of the enterprise value range….but not so big or different that they were totally transformational. Hub’s acquisition of Estenson Logistics was in 2017 and that was a $306 million deal in dedicated freight. That one surprised me a little bit because Hub is an intermodal marketing company and asset-light, and Estenson is dedicated freight. Hub has made three acquisitions in the last 2.5 years, totaling more roughly $800 million in M&A. That is actually a lot. I would not say Hub has been as acquisitive as XPO but quietly it has become pretty aggressive for a company that historically has bought very little.
LM: What is your take on Amazon getting into this space on the M&A front?
Gordon: I think Amazon will continue to invest very aggressively to build out its logistics position. But the best analogy I see for Amazon is what it did with Amazon Web Services (AWS), which really came into existence less than 15 years ago. In the beginning, AWS was a service for its existing customers, and it expanded to become a full-service, arm’s length standalone business unit. This was done through aggressive investment, but it was not done through acquisition. If AWS holds true as an analogy, then you could see Amazon continuing to pour tremendous resources in the form of hiring people and spending money on technology, building out services and building its own network like it is doing in last-mile right now. It is not as likely to be an acquirer, but Jeff Bezos is really the only one that knows that. The evidence I see seems to suggest it will follow the AWS path.
Benjamin Gordon is the Founder of Cambridge Capital and BGSA. He is a leading investor in logistics, technology, and supply chain. For more on the BGSA Supply Chain Conference, visit here.
Benjamin Gordon is Founder and Managing Director of BG Strategic Advisors (BGSA), an investment banking firm for the supply chain sector. Benjamin consults with CEOs in the transportation, warehousing, and logistics industries and helps them maximize their companies’ value through M&As, capital-raising, merchant banking, as well as other strategic initiatives. Some of his clients include Fortune 500 leaders, logistics leaders, and private equity/venture capital firms.
Benjamin Gordon is also the Managing Partner at Cambridge Capital, a leading advisor, investor, and partner for companies in the supply chain and technology sectors. They help provide private equity to finance the expansion, recapitalization, or acquisition of growth companies, using their knowledge and expertise to help their portfolio companies achieve outstanding value.
Prior to BG Strategic Advisors and Cambridge Capital, Benjamin Gordon founded 3PLex, an online transportation management system enabling automation for third-party logistics companies. Benjamin raised $28 million through blue-chip investors such as Goldman Sachs,
Morgan Stanley, and Con-Way and was featured in the New York Times and Business Week. 3PLex was eventually acquired by Maersk.
A recognized expert on the supply chain sector, Benjamin Gordon has been quoted by national media including CNBC, The New York Times, Supply Chain Management Quarterly, and Business Week. He has also been a featured speaker, moderator, and chairman at the 3PL Summit, Supply Chain Management Professionals (CSCMP), NASSTRAC, and the International Warehousing and Logistics Association (IWLA), among others. In addition, Benjamin leads the annual BGSA Supply Chain conference, the largest annual conference for CEOs from all segments of the global supply chain.
Benjamin Gordon is also an active civic leader who is committed to giving back to the community. As Founder and Chairman of GesherCity, a Jewish community and philanthropy group for young adults, he has boosted young adult volunteerism, expanding the organization to over 100,000 members in twenty locations. He has also served on several non-profit boards, including Palm Beach United Way, the JCCA, and the Middle East Forum.
Benjamin received a Masters in Business Administration from Harvard Business School and a Bachelor of Arts degree from Yale College.
Where did the idea for BG Strategic Advisors come from?
As I was building my first company, 3PLex, I got called on by a lot of investment bankers, venture capital firms, and private equity firms. I was struck by the fact that most of them didn’t really seem to understand logistics and supply chain. So I thought, “Why not start a merchant bank focused on logistics?” In 2002, I started BG Strategic Advisors. In the beginning, I ran it from my apartment in Cambridge. Since we didn’t have an office yet, we held meetings in the Charles Hotel. It was a scrappy startup, just like 3PLex, but this time I self-funded it and we were profitable from year one!
Over the course of time, we had the privilege of working with a lot of terrific companies, including NFI, GENCO, UPS, Kuehne & Nagel, New Breed, and others. We worked on over 50 deals. Then, I eventually decided that I wanted to get back into building companies, as opposed to just advising them. I realized that I could be a founder, or I could invest in businesses that others had founded. The latter was more scalable. So I started investing in logistics, supply chain, and technology companies. To do so, I established Cambridge Capital. I started by putting my money where my mouth is, and investing my own capital first. Over time we’ve brought in partners.
Over the last decade, I’ve had the good fortune to invest in more terrific companies. XPO was founded by Brad Jacobs. Its first platform, Express-1, was a small company that Brad built through organic growth and acquisitions. It’s now a publicly-traded company with an enterprise value of more than $10 billion. Grand Junction was a startup founded by Rob Howard. He had
the idea of building a technology platform to help retailers give their customers a better last- mile solution. Target ended up buying the company. These are just two examples.
Our goal is to help companies by bringing more than money. We work hard to bring expertise to our companies where we can, leveraging our industry knowledge, technology experience, networks of talented executives, access to potential customers, and more.
What does your typical day look like and how do you make it productive?
On most days, I wake up at 6am. I meditate for 5 minutes to clear my mind then spend 10 minutes scanning my inbox and responding to the most urgent/important issues. I work out for 30-60 minutes, typically either swimming/biking/running. And I start work with our daily huddle at 8:45am, inspired by Verne Harnish’s “Rockefeller Habits” model.
Over the course of the day, I schedule as much as possible. That makes it easier to focus visually on what I have to do. Also, it allows me to control my time allocations to match my priorities.
I also rely heavily on email. Since I can read and write faster than I can talk, it’s more efficient. I try to follow the “Getting Things Done” strategy. Touch emails once (reply, forward, or delete, with a clear action). Make the subject lines clear. Process ruthlessly!
When allocating my time, I try to focus on three questions:
Is it important?
Does it require my involvement, or can someone else handle it? Does it need action now, or can it wait?
How do you bring ideas to life?
I read a lot. I try to read a book a week. The last book I read was “Red Notice” by Bill Browder. It tells the story of how a young strategy consultant discovered the brave new world of Eastern European privatizations in the 1990s and ended up building the biggest investment firm in Russia. It was inspiring to see how Browder went to Poland first and Russia second, with an open mind and a readiness to apply what he learned in the U.S. in a new market where the rules were different. It was also depressing to see how the Russian oligarchs and a corrupt bureaucracy fought him, ultimately driving him out of the country and murdering his lawyer. But it was uplifting to see Browder pivot into the next chapter of his life, as a human rights activist who championed the Magnitsky Act and continues to fight for justice today.
“Red Notice” helped me generate ideas for looking in emerging markets for hidden jewels in the logistics world. I’m working on one right now!
What’s one trend that excites you?
I am very excited about the intersection of transportation and technology. That’s been a major theme throughout my career. One big driver is ACES: Autonomous, Connected, Electric, and Sharing economy. We are seeing lots of fantastic businesses emerging out of these technologies. For instance, Grand Junction succeeded by connecting drivers with retailers through a technology platform and a sharing economy model. Bringg and DeliveryCircle have similar advantages, albeit in different but complementary areas.
I believe electric vehicles will come to dominate not just passenger cars, but also trucking. Over the next decade, we will see a massive shift.
What is one habit of yours that makes you more productive as an entrepreneur?
I try to abide by the one-touch rule. When I get an email, I try to respond in a way that gets to closure. You can lose a lot of time with email back-and-forth chains. If possible, I try to give a clear and quick answer: yes, no, or depends on X. If you can reduce your touches, you can spend your time more productively!
What advice would you give your younger self?
Invest in the things that make you better. Reading has a multiplier effect. So does exercise, because it makes you better in other dimensions. And so does surrounding yourself with A+ people, in all areas of life. They can challenge you and make you better!
Tell us something that’s true that almost nobody agrees with you on.
Self-driving trucks will dominate the industry within a decade. Everyone talks about self-driving cars, but it’s already happening in trucks. Komatsu can run trucks in the mines of Australia without drivers. Driverless forklifts are already appearing in warehouses. People are petrified about the idea of a runaway truck driven by a machine that misses an important action. But this isn’t the Windows “Blue Screen of Death.” Computer-powered trucks are going through extremely rigorous testing, and will soon be ready for the road.
Also, while it’s true that self-driving trucks aren’t perfect, it is important to note that neither are humans. Tragically, 50,000 people a year die from car and truck accidents. Almost all of those fatalities are caused by human error. If machines can cut that by 90%, we might still have 5,000 fatalities a year. That would be terrible, but far better than the status quo.
Self-driving trucks can be implemented more effectively than self-driving cars, because they can be managed by companies. In sum, the driverless future will come to trucks first.
As an entrepreneur, what is the one thing you do over and over and recommend everyone else do?
Follow through. People value you when they know they can count on you. Always do what you say, so people know your word is meaningful. I can’t stress that enough.
When I started BG Strategic Advisors, our first client was a company called Air-Road Express. The CEO asked us to sell their company. We put together a plan and timetable. It called for getting the deal done in 4 months. In hindsight, this was a mistake. Your average M&A assignment often takes 6-9 months from start to finish. But we made a commitment, and we had to figure out how to deliver on it. There were a lot of late nights, early mornings, interrupted family dinners, and last-minute trips. But it all worked out. In the end, we not only got it done in 4 months, but we also exceeded the CEO’s value expectations.
That CEO, in turn, became a vital reference for our little company as we started to grow. It all revolved around demonstrating that we did what we said, and earning trust.
What is one strategy that has helped you grow your business?
My strategy has been to be narrowly focused. In our first decade, we were strictly focused on transportation, logistics, and supply chain technology. We could have taken on many more clients, but we decided that being known in our field would pay dividends down the road.
HBS Professor Michael Porter liked to say that strategy is about saying no. If you don’t say no often enough, then you spread yourself too thin. We try to maintain that dictum. Over time, as we’ve expanded our firm, our scope has expanded a little. But we still try to keep our focus tight.
What is one failure you had as an entrepreneur, and how did you overcome it?
I’ve had lots of failures! But the failures are what make you better, assuming you learn from them.
When I started 3PLex, we had a great idea. But we tried to do too much too quickly. We started with the idea of building a TMS to automate logistics. Then we added a combinatoric engine to enable companies to bid on bundles of lanes. And we also added a drayage management system. Three products was too much for one startup. We burned through a lot of money before we figured that out. I wish we had figured it out much sooner.
In the end, ironically, the product that we spent the least time and money on, in drayage, was the one that Maersk wanted.
The lesson was to listen to your customers, and ruthlessly simplify to focus on what matters.
What is one business idea that you’re willing to give away to our readers?
Think about how you can combine new technologies to augment classic business models.
For instance, every retailer in the world is trying to improve their last-mile solution to compete with Amazon. If they fail in this one area, they could fail outright. There is a fortune awaiting the company that figures out how best to do this.
Can you use drones, or warehouse automation, or other technology, to deliver a solution that is equal or better than Amazon Prime? If you can figure that out, you have a tremendous opportunity.
How Amazon Disrupts Logistics: Chapter 4 in the Benjamin Gordon Cambridge Capital Series:
View Here https://issuu.com/benjamin.gordon/docs/how_amazon_disrupts_logistics__chapter_4_in_the_be
What is the best $100 you recently spent? What and why?
I bought a Fitbit for my kids on Tuesday. They are wonderful children, but they also love reading (or acting, singing, and watching) more than exercising. For the last three days, they have been running through the house and in the backyard, counting their steps!
The old saying is true: What gets measured gets done!
What is one piece of software or a web service that helps you be productive?
We all use email. But one thing I’ve found particularly helpful was a typing class I took when I was in middle school. Being able to type fast might have seemed like a job for a secretary at
one point. Today, it’s a competitive advantage for anyone who is in business.
What is the one book that you recommend our community should read and why?
“Lend Me Your Ears” by William Safire. It is a collection of the most inspirational speeches in world history.
Start with the uplifting words from Shakespeare’s Marc Antony that inspired Safire’s title, “Friends, Romans, countrymen, lend me your ears; I come to bury Caesar, not to praise him.” You can think of this speech as great literature, which it is. You can also think of it as enjoyable to read, which it also is. But as an entrepreneur, you can consider these words the foundation for a persuasive call to action.
Any great leader, whether in politics, business, or elsewhere, should have these powerful communication tools at his or her disposal.
What is your favorite quote?
In the “Sayings of the Fathers,” also known as the “Pirkei Avot,” Hillel said this: “When a man is needed and there is no man, strive to be that man.” Putting gender neutrality aside, this quote captures the essence of leadership to me.
What Hillel is saying is this: when you find yourself in a situation that calls for action, and you see nobody else stepping up to take on that responsibility, then the choice lies with you. Will you take the reins, or will you let the opportunity pass?
I believe great leaders, great business people, and great human beings all find ways to live in accordance with this moral precept. Think about Gandhi, Martin Luther King, Sharansky, and others in activism. And think about Jobs, Gates, Musk, and others in entrepreneurship. In all cases, great leaders saw a need and realized that it was up to them to address it. Isn’t that what it’s all about?
One logistics expert, Cambridge Capital Managing Partner Benjamin Gordon, sees logistical risks in Amazon's forward integration strategy. Most notably, Amazon is breaking relationships with suppliers. As Gordon said, "In addition to losing FedEx, [Amazon] also lost XPO, the $18 billion logistics powerhouse, in a move that took away close to $1 billion. If Amazon continues to lose partners, they will face shipping failures far worse than what they experienced in 2013."
If you have any lingering doubt about the convergence of technology and logistics, ask FedEx CEO, Fred Smith. FedEx stock plunged 13% after its Q3 results call last week, which included an explanation of a decline believed to be fueled by ending an Amazon contract, where he included his former customer as a competitor, telling shareholders, “we basically compete in an ecosphere that’s got five entities in it. There’s UPS, there’s DHL, there’s the U.S. Postal Service, and now increasingly, there’s Amazon.”
In sum, we are entering a phase where logistics is more important than ever. You need to know about supply chains if you work in business, if you use technology, if you care about the economy, if you invest, or if you simply want to understand your world. Logistics has become intertwined with everything we do.
What can we expect going forward? How will logistics and transport evolve, and what should you care about most? These questions will be the focus of Supply Chains, covering the themes and trends critical to our future. Below, we illustrate eight issues, courtesy of Cambridge Capital, investors in transportation and logistics.
