December 2009, TruckingInfo.com - Feature
Acquisitions of transportation technology companies seem to be commonplace these days, as the economic environment leaves some companies with no choice, while others want to keep up with the advancing of technology.
News of consolidations have been frequent over the last few years. In February 2008, Xata Corp. bought GeoLogic Solutions. In March of this year, Descartes Systems Group acquired privately-held Scancode Systems. In April, McLeod Software announced the purchase of iLENS, a logistics software company that provides freight procurement, load execution and spot market software as well as consulting services for shippers, carriers and 3PLs. In September, Xerox purchased Affiliated Computer Services, which included ACS TripPak Services, an operating division of ACS.
Most recently, TMW Systems announced it would buy Innovative Computing Corporation. TMW in recent years has bought up IDSC (Integrated Decision Support Corp.), which sold decision support software products to help fleets optimize routing, load matching and fuel programs; and TMT Software, which specialized in fleet maintenance software.
"We've seen a lot of tech companies come and go," says Susan Fall, founder of LaunchIt Public Relations. Fall has been representing trucking technology companies for 17 years.
Fall says she's seen an increased role of technology in the trucking industry over the last few years, with trucking companies becoming more savvy and well-educated on what's out there. These days, there are so many more technology offerings out there and many more areas that need to be handled, she says. Through consolidation, tech providers can take advantage of the expertise that other companies have, building a stronger company with wider offerings. "The vendors have to give amazing offers now," she says.
Dave Wangler, president and CEO of TMW Systems, says a consolidation can help a company leverage a common, shared service, while at the same time combining sales and marketing efforts. It allows for more opportunities and more products for the company's customers.
According to Jack Jones, vice president of truckload product development at Transportation Costing Group, there are three main reasons for technology companies to come together. First, the acquired company has the ability to do something that is complementary to or completes something the acquiring company requires. Second, another company has the special ability or expertise to do things differently than what the acquiring company can do, he says. The last basic reason is for market share and the company's overall business.
Boosting Market Share
Many people in the industry seem to agree that improving market share is a top reason companies come together.
"I think that companies are looking much more aggressively at methods to grow market share and expand product offerings in ways that have much more immediate impact and ROI," says Chad Goins, vice president of service delivery for ACS Expedited Solutions. "If it is done right, a consolidation can enable you to accomplish those goals more quickly than solely through your traditional sales/marketing efforts."
According to Lana Batts, trucking industry consultant and principle of Transport Capital Partners, TMW's recent purchase of ICC was a market share move, or an effort to increase their customer base. But Batts believes we're going to see more wallet share acquisitions moving forward. While wallet share moves don't involve adding to the number of customers, it does involve increasing the expenses of existing customers. For example, when TMW purchased IDSC, it was adding its optimization tool, an offering TMW did not have. This enabled TMW to get more money from existing customers and become a larger percentage of a carrier's annual spend.
McLeod Software's strategy has been to grow organically by focusing on one customer at a time, according to Rick Halbrooks, vice president of sales and marketing for McLeod. Halbrooks points to the downside of acquisition, which can include added debt, liability, and the possibility of losing existing customers that don't want to do business with someone new. It also involves having to manage all that change, and this tends to lead the company's focus away from its customers, he says.
Breaking Into the Industry
Batts says that the cost of customer acquisition is high these days, especially in the trucking industry. It's difficult to direct mail market to the industry, and it's hard to cold call people. In addition, trucking customers are not all based in the same cities or in major metropolitan areas, so it's a challenge for technology companies to make a relationship-based sale, she says.
Specifically with new products, trucking companies need to be able to see the solution firsthand to make a decision. Trucking companies want to know that the product is reliable, dependable, maintainable and that the company will provide technical support, Batts says.
"It takes a long time to sell something new to the industry," Batts says. "Everybody's trying to sell to the industry."
But Batts says that consolidations are here to stay, and not just among the vendors, but among shippers and carriers as well.
"The big will get bigger," she adds.