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Transportation & Logistics Transportation & Logistics Strategic Market Insights – Q3 2017 Report Transportation & Logistics G2 Insights – Sector Summary The Transportation & Logistics industry continues to evolve to meet the growing demands of the persisting e-commerce boom. Below are G2’s insights and observations: The Transportation & Logistics industry continues to evolve around e-commerce and fulfillment needs of consumer demand. As the expected fulfillment timeframe of products shortens with Amazon’s aggressive hourly deliveries, industry players are looking to decrease operational costs and increase overall efficiencies to compete. Industry consolidation and strategic M&A activity has picked up, particularly within the final mile and freight forwarding segments. Additionally, new technology within the Trucking subsector, such as virtual reality and vehicle to vehicle software, has emerged to augment or replace traditional means of training and fleet management. Larger industry players like UPS, have taken the lead in technological improvement, implementing virtual reality and route optimization software. The industry can expect such technological advancements to be commercially available over the next few quarters. Sector Summary The total T&L M&A transaction volume through the third quarter of 2017 has seen a dip in volume but deal value remains consistent. High competition from both strategic and financial acquirers in conjunction with a supportive financing environment has led valuations to remain strong, particularly in the middle market. The current atmosphere has formed a “seller’s market” with vast amounts of capital chasing a limited amount of desirable acquisition targets. The summary table below references select public companies identified for each of the industry’s key segments: Logistics, Marine, Rail Services, and Trucking. Public valuations range from ~8x EBITDA for Trucking companies to ~12x EBITDA for Logistics providers. The Marine sector lags behind at ~8x EBITDA with YoY decreases in profitability and revenues. FY 20171 LTM2 Number of Median Median Median EV / EV / Sector Selected Enterprise Value Revenue EBITDA Revenue EBITDA Companies (MM) Growth Growth Logistics 19 4,060 7.9% 13.6% 1.0x 11.4x Marine 17 3,104 -1.6% -12.8% 1.4x 9.3x Rail Services 11 14,201 4.5% 6.3% 1.8x 9.3x Trucking 18 1,173 4.3% 1.4% 1.0x 7.5x 1 Compared with values at September 30, 2016 Sector Summary in Millions USD (converted where necessary) 2 LTM Multiples as of September 30, 2017 Data sourced from S&P Capital IQ on September 30, 2017 www.g2cap.com 2 Transportation & Logistics G2 Insights – Emerging Industry Trends Companies continue to shift operational focus to take advantage of technology enablement and become increasingly lean, efficient, flexible, and accurate. Final Mile Delivery – Amazon’s acquisition of Whole Foods will push other retailers to accelerate the development and rollout of their final mile delivery and omni-channel fulfillment services. Whole Foods’ hundreds of locations enable Amazon to extend its same-day and hourly (within one or two hours) fulfillment capabilities into the Grocery and Fresh Foods industry. Competitors, such as Stop & Shop’s Peapod delivery, will feel increasingly pressured to speed up their delivery times to compete. Signs of consolidation and acquisition strategies within the sector have begun as Walmart, acquired last-mile delivery startup, Parcel Inc., on October 22 to better serve customer demand for fresh groceries, accounting for 56% of annual revenues. On August 14, retailer giant Target acquired the transportation technology company, Grand Junction to augment its next-day delivery pilot program set to take place in New York’s Tribeca neighborhood next year. Route Optimization – A growing number of companies are investing in the development of sophisticated route optimization software and technology. Route optimization software instantly aggregates and analyzes a wide range of both historical and real-time traffic, weather, route pick- up, and drop-off data. By setting parameters to optimize both speed, efficiency, and even mileage, the driver can both efficiently fulfill delivery demands and reduce operational costs. UPS recently finished its pilot test of its ORION United States route optimization algorithms and is currently working to implement and roll out its software to other international markets. Virtual Reality for Driver Training – The Virtual Reality trend has transcended traditional video game and entertainment purposes and entered the transportation and logistics space. In August, UPS announced that it would start using virtual reality (VR) technology to train drivers to better identify and spot road hazards throughout their delivery routes. According to UPS, this new VR training module allows drivers to simulate the real experience of driving in urban settings, and as a result, better protect its on-road employees and the general public. UPS has incorporated this VR training to nine UPS Integrad training facilities in the U.S. and Europe since September. Drone Delivery in E-Commerce – The personal and commercial drone market is expected to report revenues of at least $6 billion in 2017 and is expected to hit $11 billion by 2020. Though majorly publicized by Amazon’s pilot launch in December of 2016, over 20 drone delivery-related companies have emerged over recent years. Retailers are eager to embrace the out-of-the-box delivery medium as a recent study revealed 42% of manufacturers and retailers are in favor of integrating logistics services with driverless vehicles. Figure 1 – A UPS driver in the Integrad program using its new virtual reality training system for on- the-road readiness. Source: Transportation Topics, SupplyChainDive, SupplyChain24/7. CEI.org, Truckinginfo.com www.g2cap.com 3 Transportation & Logistics G2 Insights – Emerging Industry Trends (continued) . Truck Platooning – The emergence of truck platooning software, developed by companies like Peloton Technology, allows multiple trucks to autonomously travel in convoys for enhanced fuel efficiency. Through direct Vehicle to Vehicle (V2V) communications, platooning trucks accelerate and brake together, reducing overall wind resistance. This in turn boosts the truck’s fuel efficiency, reducing the primary costs for trucking fleets. As the convoy’s lead truck alternates in its position throughout the haul, fuel efficiency can be distributed throughout the fleet. Once this technology is fully commercialized to reach the market, the cost-advantage will draw significant demand from truck operators. Peloton plans to release a limited number of commercial platooning software licenses at the end of 2017, with a full product launch in 2018. Hydrogen Fuel-Cell Trucks – This fall, Toyota announced its initial testing of its Project Portal Class 8 hydrogen fuel-cell trucks for drayage duty-cycle capabilities. Toyota unveiled its plan to build a hydrogen fuel-cell truck that generated more than 670 horsepower with a 12kWh battery last April. Hydrogen fuel-cell energy uses compressed hydrogen as a fuel source and releases water vapor as an emission. Development of the technology spans over the last decade but has not taken off due to severe shortages of fueling stations. However, experts predict commercial trucks will benefit more from hydrogen in the future thanks to easy access to convenient industrial fueling stations at warehouses or ports. Laws Regulating Self-Driving on the Horizon – The American Vision for Safer Transportation Through Advancement of Revolutionary Technologies Act and SELF DRIVE Act both advanced in the Senate and House with bipartisan support. Both bills permit manufacturers to apply for exemptions to federal vehicle safety standards in order to sell self-driving vehicles that may lack conventional equipment, such as steering wheels and pedals. Both bills, however, maintain the status quo for commercial trucks and buses, as labor unions, including the International Brotherhood of Teamsters, lobbied hard to keep them out of self-driving bills. The main concern over the application of driverless technology in commercial trucks is the potential threat to jobs in the Transportation & Logistics Industry. It is estimated that up to three million commercial trucking jobs could be at risk if self-driving vehicles replace human drivers. Figure 2 – A Peloton Technology screenshot portraying the fuel efficiency gained from reducing track by platooning throughout trucking fleets. Source: Transportation Topics, SupplyChainDive, SupplyChain24/7. CEI.org, Truckinginfo.com www.g2cap.com 4 Transportation & Logistics Selected Industry Deals Q3 2017 Several notable transactions have already been completed or announced in the Transportation & Logistics industry through Q3 2017. G2 has outlined select transactions below, followed by a more comprehensive list on the following tables. Odyssey Logistics & Technology Corporation to acquire The Jordan Company (Pending) – Announced on 8/30/2017, The Jordan Company has signed a definitive agreement to become a new majority shareholder in Odyssey Logistics & Technology Corporation, a global logistics solutions provider with intermodal, trucking, and managed services. Terms of the deal were not disclosed. In addition to its pending investment of Odyssey, The Jordan Company, a private equity firm with capital commitments exceeding $8B, owns American Fast Fright, an ocean freight forwarder, and Quick, a mission-critical logistics firm. J.B. Hunt Transportation (Nasdaq:JBH) to acquire Special
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