The European transport sector is undergoing a significant transformation due to the increasing pressure to reduce CO₂ emissions and transition to electric trucks the Dutch Financial Times wrote. This shift brings considerable financial and operational challenges, particularly for smaller transport companies. In this context, proper due diligence plays a crucial role for logistics companies considering the acquisition of smaller players. This article explores how thorough due diligence can facilitate successful acquisitions and highlights the most critical aspects of this process, especially in Europe with its stringent sustainability requirements.

This article is written by Cem Adiyaman and Hans van Loenen. Cem ([email protected]) and Hans ([email protected]) are part of the RSM Business Consulting team with a specific focus on International Trade and Strategic Goods.

The importance of due diligence in acquisitions

Due diligence is an essential process when acquiring smaller logistics companies. Through comprehensive evaluations and (risk) analyses, buyers can gain a clear understanding of the financial health, operational efficiency, and strategic value of the target company. In the logistics sector, where margins are often thin and market dynamics can change rapidly, it is vital to assess all risks and opportunities meticulously. Key areas of focus should include financial stability, operational processes, regulatory compliance, market position, and sustainability practices. This thorough approach helps identify potential red flags, ensures compliance with stringent environmental regulations, and uncovers opportunities for operational improvements, ultimately leading to a successful acquisition and integration.

Key focus areas of Due Diligence

In the logistics sector, due diligence should focus on several crucial areas:

  • Financial health: Analyze financial statements, including income statements, balance sheets, and cash flow statements. This helps assess the financial stability and profitability of the target company. Key metrics to consider include revenue trends, profit margins, debt levels, and cash reserves. Understanding these aspects can reveal potential financial risks and growth opportunities.
  • Operational efficiency: Evaluate the fleet, including the condition and age of vehicles, maintenance records, and the efficiency of logistics processes. Assessing the state of the fleet can indicate the level of investment required to maintain or upgrade the vehicles. Additionally, review the company's IT systems and level of digitalization, as advanced technology can significantly enhance operational efficiency and reduce costs. Lastly, is the fleet ready for the next generation of transportation whether that is electrified, hydrogen based or perhaps even hybrid transportation.
  • Regulatory compliance: Verify whether the target company complies with all relevant laws and regulations, particularly regarding environmental and sustainability standards. In Europe, regulations around CO₂ emissions and environmental zones are becoming increasingly stringent. As the Dutch Financial TTimes wrote: reporting on these sustainability matters is becoming a hurdle for many. A target company who already has started with its first sustainability steps can have much more upside.
    Another often overlooked topic: export controls and trade compliance. LSP can be sued in Europe for transporting goods if the importer or exporter of certain goods has not done a clean due diligence on the well-known 4 W's: What should be exported? (i) Verification of export goods against legal requirements (goods lists), (ii) Who is involved? Check involved parties against sanctions lists, (iii) Where to export to? Check destination country for embargoes and sanctions (iv) What will the goods or technologies be used for? Verify intended use or end use.
  • Sustainability and environmental reporting: In line with the above, given the growing focus on sustainability, assess how far the target company has progressed in implementing sustainable practices and how well-prepared they are for new environmental reporting requirements such as the Corporate Sustainability Reporting Directive (CSRD). This includes examining their current environmental impact, sustainability initiatives, and the quality and comprehensiveness of their environmental reports.
  • Market position and competitive landscape: Understand the target company's position within the market and its competitive landscape. This involves analyzing market share, customer base, and key competitors. Identifying the company's strengths and weaknesses relative to its competitors can help in formulating strategies for growth and competitive advantage post-acquisition.

Electrification of Road Transport in Europe

The transition to electric trucks is a strategy to reduce CO₂ emissions in the transport sector. Despite the high acquisition costs and operational challenges, such as a limited number of charging points and higher running costs, many companies continue to invest in electrification. The European Union has set ambitious targets for reducing emissions, and electric trucks play a pivotal role in achieving these goals. For example, the EU aims to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and achieve climate neutrality by 2050. Additionally, the EU's Fit for 55 package includes a target for a 50% reduction in CO₂ emissions from new trucks by 2030.

Therefore, logistics companies must be aware of several key aspects when transitioning to electric trucks:

Cost and subsidies: Electric trucks are more expensive to purchase, but various subsidies are available to offset these costs. Companies should be well-informed about the financial assistance available and the conditions for eligibility. To give the reader an idea. In the Netherlands, the government has provided a subsidy for the electrification of electric trucks. This pot of 45 million euros was exhausted within 2 days. Understanding the total cost of ownership, including purchase price, maintenance, and operational costs, is essential for making informed investment decisions.

Infrastructure: A robust network of charging points is essential for the efficient use of electric trucks. Companies need to plan for the installation of their own charging stations and make use of public charging facilities. This requires collaboration with energy providers and local authorities to ensure the availability and accessibility of charging infrastructure.

An electric vehicle (EV) usually has a battery capacity ranging from 40 to 100 kWh, providing sufficient energy for typical passenger car ranges. In contrast, an electric truck is equipped with much larger batteries, often between 300 to 500 kWh, to support the higher energy demands and longer operational ranges required for commercial transportation.

Operational adjustments: The deployment of electric trucks necessitates adjustments in logistics planning, such as integrating charging breaks with drivers' rest periods. Companies need to optimize routes and schedules to minimize downtime and maximize the utilization of electric trucks.

For logistics companies looking to buy electric trucks, the significantly larger battery size and higher energy consumption translate to higher upfront costs and increased infrastructure investments, such as installing high-capacity charging stations. Additionally, the operational planning must account for longer charging times and potential range limitations, which can affect delivery schedules and route efficiency.

Regulatory changes: Stay informed about regulatory changes and incentives related to electric vehicles. Governments may introduce new policies that affect the adoption and operation of electric trucks. Being proactive in understanding and adapting to these changes can provide a competitive edge.

Forward Thinking

In a competitive and vibrant market, due diligence is a crucial step for logistics companies aiming to strengthen their competitive position through acquisitions. By focusing on financial health, operational efficiency, regulatory compliance, sustainability, and market position, companies can minimize risks and maximize opportunities. The electrification of the transport sector presents both challenges and opportunities, and well-informed decisions are essential for a successful transition. 

Through careful planning and strategic investments, logistics companies can simply walk through these ‘complexities’ of the market and contribute to a more sustainable future. One thing is certain: transport will endure indefinitely. The question is in what form, with which energy source, and at what cost. Staying abreast of developments will enable your company to grow more easily by acquiring parties that add value.

RSM is a thought leader in the field of Strategic Due Diligence and International Trade consulting. We offer frequent insights through training and sharing of thought leadership based on a detailed knowledge of industry developments and practical applications in working with our customers. If you want to know more, please contact one of our consultants.