The freight market is showing signs of recovery, reigniting mergers and acquisitions interest across the logistics sector. While non-asset brokerage deals — where firms arrange freight without owning trucks — have historically attracted private equity because of their lower capital intensity and scalable technology models, asset-based trucking presents a distinct set of challenges. Asset-based carriers own their fleets, employ drivers directly, and carry the fixed costs that come with physical equipment, making them fundamentally different investment vehicles. Craig Decker, Managing Director at Brown Gibbons Lang & Company, says financial engineering alone is not enough in asset-heavy operations — and that a failure to understand replacement cycles and operational complexity can lead to what he called "miserable" investment outcomes.

Speaking on FreightWaves, Decker identified three compounding failures behind private equity's persistent losses in asset-based trucking: overleveraged balance sheets, misread freight cycles, and underestimated operational complexity. He noted that the industry is seeing a resurgence in M&A interest that began in the third quarter of last year, as truckload rate indexes shifted and regulatory changes began tightening capacity — but warned that past mistakes could repeat. The freight recession that compressed carrier margins over the past several years is widely traced to a post-pandemic capacity overbuild that outpaced softening demand, driving smaller operators out of the market and creating conditions for rate recovery as capacity tightens.

Strickland argued that the core financial error is leverage. Asset-intensive trucking businesses carry fleet replacement cycles of three to five years for truckload and seven years for less-than-truckload (LTL), meaning depreciation and amortization represent a real cash expense rather than a paper one. When private equity firms load debt onto those businesses, debt service competes directly with capital expenditure. In non-asset models, by contrast, the primary investments are technology platforms and working capital rather than depreciating physical equipment.

"What they might do is extend the trade cycle on their equipment or defer some maintenance," Decker said. "When you start doing that, that just really, really deteriorates your business, whether it be from your assets not running at the right OR [operating ratio] to your customer satisfaction rate going down."

A decade-plus of near-zero interest rates made the leverage math appear manageable. Decker noted that investment professionals who entered private equity after the 2008 financial crisis modeled businesses against LIBOR rates of around 50 basis points — effectively 1.5% to 2% all-in borrowing costs. Those same professionals are now senior decision-makers who have not been tested in a real rate environment, making the current high-cost-of-capital era a difficult adjustment. The Federal Reserve's rate-hiking cycle, which took the federal funds rate from near zero to above 5 percent in 2022–2023, has materially altered the cost structure that previously made leveraged acquisitions of asset-heavy carriers feasible.

"It's not a good business within their holding period. Part of it is that their lifespan of their investment or their thesis on that is 3 to 5 years. It's really too short," Decker said. A typical private equity hold is shorter than a full freight cycle, creating a structural mismatch with an inherently cyclical industry where peaks and troughs can each persist for multiple years.

Operational unfamiliarity compounds the balance-sheet problem. Decker cited driver turnover as one variable that PE spreadsheets routinely underestimate — the industry average runs roughly 1.8 to 2 drivers per truck per year at approximately $10,000 per driver to test, seat, and train. Insurance incident rates, weather disruptions, and customer service failures cascade in ways that cannot be modeled, he said. PE firms that try to manage trucking companies by spreadsheet rather than through experienced operators tend to spiral downward.

The cycle-timing problem is equally punishing. Decker said acquirers frequently rely on trailing-12-month financials without accounting for where a carrier sits in the freight cycle. Because of the operating leverage embedded in trucking, a 12-month snapshot at the wrong point in the cycle is, in his view, essentially irrelevant for underwriting a multi-year hold.

Where private equity can succeed, Decker said, is in specialized or dedicated segments — such as cold chain serving pharmaceuticals, hazmat, or other end markets with low price elasticity and sticky margins — rather than commoditized truckload. These segments benefit from higher barriers to entry, including specialized equipment requirements, regulatory compliance burdens, and contractual customer relationships that are harder to displace on price alone. He pointed to growing investor interest in those niches and noted that port diversification is adding another layer of complexity, with freight increasingly routing through Savannah, Gulf ports, and Norfolk rather than solely through Los Angeles–Long Beach. That diversification trend accelerated during the COVID-19 pandemic and subsequent West Coast labor negotiations, which prompted many shippers to permanently reroute volume through East and Gulf Coast gateways.

"66% of our population is east of the Mississippi," Decker said, arguing that Mid-Atlantic and Southeast logistics hubs offer lower labor costs, fewer union constraints, and better highway access than California gateways.

Decker said deals are now beginning to close after what he called "4 very, very long years" of a freight recession, with brokerage transactions leading the way and asset deals starting to follow. Investors are increasingly targeting specialized niches like cold chain pharma and dedicated transport over commoditized truckload, reflecting a broader shift in how capital is approaching the sector.

Source: FreightWaves