After a pause during the peak of the COVID-19 crisis, mergers and acquisitions are now back in the headlines. With the creation of the latest relocation and moving giant in the form of SIRVA BGRS Inc., do mega-deals like this signal a new trend in the moving and relocation industry in the post-COVID world? And if so, what might they mean for FIDI Affiliates? Andrew Bennett investigates
Consolidation in the moving and relocation industries is nothing new in itself, but COVID-19 has created a global economic upheaval that has accelerated the drive towards forming ‘bigger equals better’ enterprises.
It seems that current boardroom thinking is that larger global relocation and international moving enterprises will be better able to withstand any future crises. However, Yann Blandy, CEO of Santa Fe Relocation, doesn’t see anything particularly fresh driving the desire from moving and relocation enterprises to pursue mergers and acquisitions.
‘COVID-19 has just accelerated those trends,’ he says. ‘With COVID, there has been a shock to the world economy, and a shock to the moving industry or the relocation industry, at large. And that has weakened further an industry that was not very strong, either on profitability or on cash. As a consequence, there is a belief that bigger is better.
‘By being bigger, you’re going to be better at withstanding future crashes or you’re going to be able to extract additional synergies, but I really don’t see anything that is actually fundamentally new post-COVID.’
With the industry – as Blandy sees it – in a very weak position on pricing power, the only way to achieve better profit is for companies to make ‘synergies on the cost side’.
‘Maybe there is something about broadening the offering; there is something about geographic scope… but I would assume that the key driver is cost synergies,’ he says, referring to the SIRVA BGRS deal. ‘And (to have) the ability to invest in technology.’
Moving industry consultant Mark Oakeshott is an experienced industry observer with several leadership roles in moving and relocation on his CV. His career began at Pickfords and later included developing the Allied Global Network for SIRVA. He, too, doesn’t see any particularly new trends, despite COVID-19. But Oakeshott expects to see more mergers and acquisitions.
‘I don’t believe COVID has impacted the trend toward consolidation. The primary change in the last two years is more focus on consolidation in the relocation management segment of the industry,’ he says. ‘As margins are squeezed, I believe you will see more RMCs combining to achieve synergies.’
Oakeshott adds: ‘CEOs and investors in large companies will always follow the money. It is unlikely that there will be any significant return on investment through organic growth, so consolidation delivers revenue growth and the opportunity to achieve significant cost savings.’
Becoming more agile
This doesn’t mean that the international moving market has stood completely still during the last two years.
‘COVID, the subsequent supply chain problems, and more recently the war in Ukraine have obviously impacted the international moving market strongly. Corporate accounts have learned to be more agile and have been forced to re-think their global strategies. Consequently, some previously active geographic markets may never fully recover,’ says Oakeshott.
Despite often being a controlling force in the industry, relocation management companies themselves have had to adapt to the times.
‘I think most relocation management companies understand that the game is over in terms of future wide adoption of the traditional inclusive relocation package,’ says Oakeshott. ‘By nature, RMCs dislike assets and some are reaching toward “talent management” (services) to diversify. I sense the smarter strategy may be to stay closer to their core competency in combining relocation and immigration with moving.’
At Santa Fe, Yann Blandy says some demand for moving has rebounded since COVID-19. Some parts of the world may be back at 2019 pre-COVID levels, with the ‘US domestic (market) remaining very, very strong’. But Asia and much of Europe has not fully recovered across all business lines.
Price pressure remains ‘very, very intense’ on movers in the market, but with the rise in inflation ‘we are actually starting to see movers acting a bit more sensibly by increasing their prices quite significantly to be able to pass on the extra cost’, says Blandy. ‘I do see prices going up. But the question is how much those prices are going up – just passing on additional cost versus actually trying to get additional margins. Prices have obviously been going up because of the freight crisis that has happened but also now because of everything else.’
This includes growing energy bills, and more expensive packing materials and labour costs, adding more pressures in 2022. Other trends the Santa Fe CEO sees is digitisation, and some of the moving workforce – especially in North America and Europe – leaving the industry for better paying jobs in other professions.
At Santa Fe, digitisation remains a key driver of change. The business is ‘investing more and more in technology, on the one hand, to have a better customer experience, but on the other, also to have more efficient processes at the back end’. ‘That also remains something that we’re very focused on.’
Thin margins equals trouble
Like other experienced industry observers, FIDI Secretary General Jesse van Sas believes there will be more merger and acquisition activity – driven by an economic downturn.
‘I assume our industry will follow the same pattern as the global economy, in which a recession – and I think everyone agrees we are moving towards a recession now – will lead to people wanting to sell out. Credit will be tighter, leading to higher costs and anyone with thin margins will get into trouble,’ he says. ‘This is where merger and acquisition (M&A) becomes attractive, to combine revenues and market share and reduce overhead spending. A recession will be a catalyst for M&As.’
He adds: ‘The same would count for the relocation industry, and in particular the moving industry, where the last tranche of the “Boomer” generation begins to exit the workforce. Companies will want to leverage volume for lower costs, especially at times like these with heavy inflation and rising resource costs. For the RMC portion, the merger of SIRVA and BGRS will lead to more of those M&As, particularly for the smaller boutique companies.’
‘Adapt quickly to survive’
Steve Jordan, editor of The Mover magazine, sees more disruption ahead for the moving industry. Although movers have proved resilient for many decades, he believes they need to adapt their businesses faster to follow technology trends.
One particular additional challenge for movers is in planning succession for their companies, with many company founders and senior executives of family firms now at a mature age.
‘The direction of travel is that the world is a smaller place,’ says Jordan. ‘People have greater opportunities… and more distractions than before. One hundred years ago, if your father ran a moving company, you would most likely join it too. Now, the passing down through the generations is diminishing… there may be little choice but to sell (the business) on to a big company. If family moving companies can continue as a family business and are happy operating it, then those companies will continue to survive.’
The great need for compliance and the introduction of digital inventories for consignments will drive further change in the industry. And Jordan believes smaller players may need to partner with bigger operators to succeed – or even to survive. ‘The industry does adapt and will have to adapt again… (but) they will have to do it quicker,’ he says.
Jordan believes movers may underestimate the impact that a tide of new technology will have on their businesses and may ‘look too short term’.
‘People are increasingly doing most things that need to be done through an app. I have asked the question at industry conferences for years and always get the same answer – “people will always need their hands holding and moving is a people business”. (The moving companies believe) the relocation function will always be required.
‘Nowadays, most young people do most things on a mobile phone using 2020 technology and 2020 mindsets. In another two generations, computer technology will be 1,000 times more powerful and the use of technology will be as instinctive (to that generation) as breathing. I don’t believe assignees will need someone’s hand to hold if they want to rent a flat in Bangkok.’ He adds: ‘Technology is progressing at lightning speed; if industry does not deal with that it will be disrupted.’
Santa Fe’s Yann Blandy believes smaller moving companies – despite multiple challenges and pressure from many directions – will continue to operate.
‘We are already an industry of small players… I tend to believe that the last mile will always exist, because someone will still need to own a truck and have crews,’ he says.
‘The question is whether these are going to be those small FIDI movers or if it is going to be the companies to which the small FIDI movers currently outsource… or whether someone’s going to consolidate all of the small movers out left, right and centre. Which I don’t think someone will.’
Mark Oakeshott is positive about the future for family-owned movers. ‘The number of moving companies that simply provide international moving will continue to decrease, but I am very optimistic about the future of diversified, cost efficient, well-run, family-owned moving companies,’ he says. ‘I don’t see anybody disrupting the business model of service delivery.’
Possible culture clashes?
And for those companies that go ahead with a merger or acquisition – or seek to find a suitable buyer for their business – do plans always go smoothly?
Writing in Forbes magazine about overall business trends, Jonathan Herpy says culture can be a stumbling block: ‘Sometimes, the failure comes from a simple cultural mismatch. Sometimes two companies’ cultures are compatible. Sometimes they are not. This mismatch in corporate culture could lead to friction among teams or limit their effectiveness.’
Yann Blandy says that there is often an underestimation of the importance of culture in a merger.
‘This industry is a little bit special in the sense that I have seldom met company cultures that are so strong, that you could actually wonder whether merging such company cultures is ever going to be successful,’ he says.
Oakeshott has a different take on the issues faced by family-owned movers who are thinking about their futures. ‘The challenge for small to medium companies is who to turn to for advice and guidance,’ he says.
‘Expanding by acquisition should be part of a company plan but selling your company should also be well thought-out and professionally managed. Too often, owners wanting to exit don’t think about it far enough in advance.’