In recent months, we have witnessed a spate of mergers and acquisitions activity in the intelligent transportation systems (ITS) side of tolling. One prominent example is Federal Signal’s acquisition of Diamond Consulting, Sirit, and VESystems which, combined with PIPS and Federal Automated Parking Devices, formed a new unit called Federal Signal Technologies Group.
On the public agency side, Massachusetts recently consolidated the Massachusetts Highway Department, the Massachusetts Turnpike Authority, the Massachusetts Port Authority (MassPort) with its Tobin Bridge, and the Massachusetts Bay Transportation Authority (Boston area’s transit system) all under the management of the Massachusetts Department of Transportation. In a similar move several years ago, New Jersey consolidated the Garden State Parkway and the New Jersey Turnpike into one authority overseen by a board of commissioners appointed by the governor.
Over the years, we have seen similar consolidations of toll road concessionaires in France, Spain, Italy, Portugal and elsewhere around the world. So, mergers and acquisitions are a fact of life. Most M&As begin with high expectations for success and the promise of cost reductions, improved efficiency, and greater productivity. Some M&As live up to those expectations while others fall short by varying degrees. Others fail miserably.
What do recent mergers and acquisitions mean for the toll industry? What is the significance of M&As for the sustainability of tolling as a funding, financing, operating, and governance mechanism? What do they say about the political, economic, technological, and social forces that are exerting their influence on mobility solutions around the world? What influence, if any, will these M&As have on the goal of achieving universal interoperability of electronic toll collection?
Sunday, May 2, 2010
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Well someone needs to kick this one off, or at least add to Pat's comment.
ReplyDeleteThere are myriad reasons why companies combine or acquire other companies but beneath it all is their assessment that it will provide them benefits either in growth or savings. It seems to me that the primary driver in the US market is growth.
In my opinion the US toll market has great potential to grow. Not only are toll authorities at the point of system replacement but State DOT's are developing HOT lanes, cities are considering congetion charging or parking management and VMT is in the discussion.
To serve a larger market customers will expect one stop shopping fom established vendors with solid track records. As an industry we are growing up and all we are seeing are signs of that growth. Not always pretty but in the long run positive
The stronger industry will be a necessary pre-condition of VMT Congress will never approve a scheme that does not show promise of success
Thank you, Larry, for kicking off the discussion. I was beginning to think no one would respond. Perhaps M&A is something that is on everyone’s mind…but far from their lips. What’s the expression? “Loose lips sink ships.” Let’s see if a few more courageous souls will respond.
ReplyDeleteAt the ITS America Annual Meeting in Houston this week, I met with representatives from several major architectural and engineering (AE) firms. One of them cited a recent report by the Environmental Financial Consulting Group, Inc. that notes the progressive consolidation in the AE industry. While I cannot report exact data because I don’t yet have access to the report, what’s important to note is the scale of consolidation. According to one person with access to this report, 20 years ago the 50 largest AE firms accounted for about 25% of the business. Today, the 50 largest AE firms account for about 70% of the business. In addition, of the 46 largest firms that were in business 12 years ago, only six (6) of those firms still exist as independent (non-acquired) entities today.
It’s interesting to note that there are almost no hostile takeovers in the AE sector. The reason is that the principal value of the acquired firms comes from the talent and expertise of the people in those firms. The acquiring firm, therefore, doesn’t want to do anything to drive away the acquired talent. Hence, if an acquisition is perceived as hostile, then it simply doesn’t happen because the resulting talent flight would be damaging to the combined firm.
Final observation based on my conversation with the experts: there will always be a niche in the marketplace for smaller AE firms. You don’t have to be a behemoth to survive. The key to survival is constantly asking yourself “what do I want to be (as a firm) when I grow up?” If you want to be in charge of massive projects emanating from huge clients like the larger state departments of transportation, then you probably need to be one of the largest firms because the ability to compete for those projects will depend on the strength (and size) of your balance sheet. On the other hand, if you like smaller projects that come from clients like small cities and counties, then you can prosper in that niche marketplace.
Since nobody seems to want to discuss the effect of mergers and acquisitions in the tolling industry, I thought I would distract you with news of mergers in other sectors…
ReplyDeleteAIRLINES: US Airways chief executive W. Douglas Parker took umbrage at this comment from Continental Airlines CEO Jeffery A. Smisek: “I recognized that United was the best partner for Continental, and I didn’t want him to marry the ugly girl; I wanted him to marry the pretty one.” See this link for more: http://dealbook.blogs.nytimes.com/2010/05/04/us-airways-c-e-o-were-not-the-ugly-girl/
RENTAL CARS: Dollar Thrifty says it will consider a substantially higher offer from Avis Budget Group than the $1.2 billion proposal it had accepted from Hertz Global Holdings. See this link for more: http://dealbook.blogs.nytimes.com/2010/05/04/dollar-thrifty-says-it-will-consider-an-avis-offer/
PHONES: Hewlett-Packard announced that it planned to acquire struggling cell phone maker Palm in a deal valued at $1.2 billion. See this link for more: http://dealbook.blogs.nytimes.com/2010/04/28/h-p-to-buy-palm-for-1-2-billion/
HOLLYWOOD: And finally, celebrity actors Clare Grant and Seth Green were married May 1 at a private vineyard in northern California. Clare wore an Oscar de la Renta wedding dress and Seth wore a custom-made suit from Dennis Kim. See this link for more: http://hollywoodcrush.mtv.com/2010/05/04/seth-green-clare-grant-wedding/
Need I say more?
Posted by Jack Opiola, D'Artagnan Consulting LLC, Part 1 of 2
ReplyDeleteThe life cycle of business or market is punctuated by niche market players vying to be “first in” with products; followed by a fall out and emergence of several suppliers vying for dominant market shares; then as maturity of market progresses, consolidation and “second-in” larger companies are attracted to the marketplace. If one reflects on the personal computer market, one will see a great deal of parallels in the above to our tolling and revenue collection marketplace.
The Government, both State and Federal, proclamations about road pricing and tolling, which started near the last Administration, has drawn the attention of major National and International companies to our marketplace. Classic large corporations known to be traditional “second-in” companies, such as IBM, have discovered that a smarter planet means tolling, State-wide and Regional clearing houses and National road user charging (RUC) paradigms such as VMT.
In a strategic context, we should be smiling at the consolidations, international company activity and large corporate interest in our marketplace. All of these are signs that world of “itty, bitty toll takers association” has emerged into the “big time” world of being a bona fide marketplace. In economic terms, a growing market place with great investment potential.
Our world is changing and will continue to change. Rather than succumb to sentimental “good ol’ time feelings”, or, retreat to protectionism, or regression into isolation, we as a community should open ourselves up to our new found status and embrace those attributes which hallmark a true marketplace. In particular, we should reach out to other mature markets such as banking and financial services, investment communities, automotive industries and technology standards for interoperability.
Reaching out to the Banking and Financial Services industry would provide a stable means to create value for our growing population of users with standard and open payment services model. We should use our market size and strength to embrace and introduce new payment and financial services that are standard to our customers and save us overheads and costly administrated services. New paradigms of consolidated transportation services and discounts for tolling, Express Lanes, Park-n-Ride, parking and pay-as-you-drive insurance should be explored. The old-timers of the industry will chant that “we tried that before” but as a niche market, none of the insurance, banking and financial services market companies were interested in small time, niche businesses with one or two proprietary suppliers and systems. Our newly found status in the eyes of the market should change that and embrace a new “open market” which welcomes wider financial stability and interfaces to established banking processes.
Linkages with the automotive marketplace are a natural union for our brave new world. An embedded system such as the 5.9 GHz WAVE technologies provides a perfect example of common ground for our industry and the automotive industry. V2V and V2I communications made possible by technologies such as 5.9 GHz provide a wider platform to bring tolling and road pricing as a simple and easy compliance feature for the everyday driver. Coupled with its security, range and throughput, it can be coupled with standard payment systems offered by the banking and financial services market to ensure compliance and reduce enforcement. Mostly, it allows us to reach the wider user market for the growing number of HOT lanes, managed lanes and potential VMT distance charging systems for all vehicles. All of these come together with enhanced safety and movement to a larger Interstate, Regional, National and International charging paradigm.
Posted by Jack Opiola, D'Artagnan Consulting LLC, Part 2 of 2
ReplyDeleteLastly, open platform technology standards are a must. The computer, telecommunications and wireless telephone industries did not grow by proprietary technology systems. Computers needed to exchange files and data. One telephone network had to interface to those in the neighboring city and region. Wired and Wireless telephone services lacked value until our modern roaming required national access and international communications. Rather than a pure technical interface or standard, services became the hallmark of these industries just as they demand open, global standards for our industry. Coupled with banking and financial services, embedded vehicle systems, the technological open system de-risks our business models and allows greater competition and more companies to share in its wealth producing nature.
So what does mergers and acquisitions mean to us? It is a sign that our marketplace is growing. We need to grow and mature with it. We need to embrace our change in status and move forward to greater responsibilities and grow with the market for greater security, jobs and responsibilities. As an industry, we need to lead the market with our knowledge and our understanding while opening up to new service models and value for our customers. Rather than fear and retreat from global practices and thinking, we need to put aside our “not invented here” syndromes and welcome both the consolidation, the greater Government involvement along with its oversight, and move forward with open arms to the financial, embedded automotive systems and open system technologies that integrates our growth as part of the global economic fabric. As shown in other industries, market growth is painful, but to ignore it or fight it provides you only with being a historical footnote. Just ask Altair, Merrill Computers, Wang Office Word Processors, DEC, SUN, or the dozens of start-up automobile companies such as LaSalle Hudson, Packard, DeSoto or Studebaker. Consolidation into today’s IBMs or General Motors is part of the natural business cycle of a market on the ascent.
Hi Pat
ReplyDeleteI see the toll industry, especially in the USA, as being effectively flat on its back, financially, and its long term prospects are receding as (among other things) real hhld income continues its slide and vmt rates of expansion have all but evaporated over the last 50 years. The industry is desperately in need of new sources of value development.
Some will suggest broader use of a well worn tool that some may see as worn out, i.e., leasing. But I believe there are other combinatory avenues with higher levels of return for all participants, and I believe those paths will emerge as the stronger candidate pathways.
These can be seen in some cases as the re-absorption or re-combination of infrastructure into other allied enterprises. In other forms, it will be new combinations of organization with previously unseen or non-existent synergies that have emerged as technologies have been developed. In this vein, we have seen some of this associated with collections technologies and the synergies attendant thereto. But the arena is much broader.
Through synergies (economies of association and agglomeration), the value basis of infrastructure systems in partnership with its new partners will enable both/all parties to see enhanced value, and infrastructure will be far more viable or a stronger contributor to combined values within these larger systems.
It is already happening as evidenced by the modal integration of the tolled platforms that is ongoing. This integration is operational. But enterprise integration is easily conceivable. Joint development will readily follow based on the enhanced valuations that transit enables.
It also can be seen in goods movement systems that are developed as part of larger resources enterprises. Over time, these mobility/access systems will be a spine of ongoing enterprise-value evolution/expansion.
Other markets and services are easily seen to be compatible, and the M&A firms should become far more active in developing new forms and combinations with respect to transport systems.
Paolo (Paul) Pezzotta, AICP
President
Integrated Transport Planning, Inc.
15 Smithbridge Road
Chester Heights, PA 19017-0183
Tel: 610 220 3868
Any ITS merger or acquisition (M&A) should offer the End User the ability to implement superior technology based solutions and opportunities better equipped to serve the market sector.
ReplyDeleteBy combining the technology synergies of VESystems, SIRIT, Idris, PIPS and FAPD, Federal Signal’s acquisitions strategy focused on creating that superior technology platform and service offering. At the same time providing End Users with a choice of custom, more complete, and fully integrated solutions - effectively becoming a one-stop shop for electronic tolling and ITS.
Acquisition target companies tend to be market leaders with superior technology and special relationships with their customers. This in turn promises long term revenue generation and earnings growth. Focused industry consolidation can provide the customer focused responsiveness of smaller companies with the financial depth and resources of a larger entity.
What’s missing in the US electronic tolling industry are common standards and open interfaces providing the customer with choice. Federal Signal intends to play its part in bringing these standards and openness to the tolling industry. More open architectures and common standards will create increased competition and offer superior, best value technologies to the customers.
Maurizio Rotondo - Aiscat
ReplyDeleteConsolidation is an indicator of our marketplace having come of age. In many field growing interest and growing market led the first entrepreneurs to merge or to buy-out others in order to offer a better product at a better price (sometimes also the same product at a higher price, but that is monopoly, it cannot be our case because tolls are at any event regulated).
Is it a good thing or a bad thing? Is it simply a fact of life? A lot, the most, has been written by those who posted before be, so I would try another course.
Is it a merger or an acquisition to swallow a toll road because it is a cash-cow and I need that cash to pay for something else? In my opinion this might be a financial exercise, it might be an opening of a new market (generalized transport funding), but it is not a real merger nor a real acquisition.
Someone befor me wrote that the driver for mergers and acquisitions is the desire/need to activate sinergies, to do more with less money, and I tend to agree.
I see as a good signal real mergers, toll operators of toll industry actors joining forces, I do not see as a good signal the (ostile) acquisition of toll assets, to bring them in a bigger, cash stripped box.
This does not prevent a new market from establish itself and grow, a transport market of which toll roads would be a part; toll roads should be let decide though when and at what conditions enter that market, because they do have a business model and to force them beyond the limits would not help the broader market and would imperil the one of the toll roads.
HI Pat
ReplyDeleteAccording to a news item on this site, Transurban has just apparently received a bid to be bought out by a Canadian pension system.
Toll roads are going to be subsumed into larger systems via M&A and via strategic re-development. Highways and transit systems in the public sector are likewise going to evolve their enterprise model to become more productive partners within the larger economy.
These public and private-sector, priced and non-priced enterprises are being far too narrowly managed and, in the process, not only sub-optimizing their own income potential; they are also sub-optimizing the performance of the broader economy.
That creates the opportunity for great returns, and that opportunity will not go begging for much longer.
The current operators can take the lead in designing those larger enterprises or they can be the lunch of those with larger appetites.
I suggest taking control of your own futures.
But to do this, toll operators need to change their understanding of themselves and their options and their opportunities and the opportunities that are within their reach and the opportunities they can fashion for themselves, and the opportunities they can fashion with strategic partners.
Paolo (Paul) Pezzotta, AICP
President
Integrated Transport Planning, Inc.
15 Smithbridge Road
Chester Heights, PA 19017-0183
Tel: 610 220 3868
IBTTA’s Tolling Points Blog
ReplyDeleteThe High Price of Building & Designing Toll Roads is creating Lack of Industry Innovation
M&A’s in the toll road industry may not be as healthy as many of the commentators suggest. I feel the sweeping number of M&A’s, particularly in California could reduce creativity in innovation and cause stagnation in the industry.
The underlying culprit is the challenging bond requirements enforced by the federal government. Currently, if you want to design and build a toll road anywhere in the United States you need to have deep pockets. Private designers, toll road operators and construction companies are required to go through a grueling RFP bidding process and be willing to invest hundreds to millions of dollars into a single project.
Smaller firms that don’t have the capital to compete are being forced to choose between being pushed out of the marketplace altogether or merge/ team up with a larger company.
The point that I want to make is this: the government is driving smaller companies away by enforcing unreasonable and economically impractical bond requirements. If this remains to be the case, we will have an industry that abides by the rule: “if you don’t have Rolex on your wrist or diamond on your neck, don’t bother showing up.” Of course, a bond requirement isn’t a new development for any kind of construction—I realize that there must be a bond or letter of credit to call on in the event of default. But the question is: Does the requirement encourage innovation? Or stifle it?
The increasing M&A trend surely shows us that the industry is growing—but is it growing in the right way?
In my opinion, the last thing we need in today’s congested world are requirements that hinder true progress. We need innovation, we need smart people who are willing to take some risks and we need a partner in the public sector that truly understands that wasting time and discouraging investment in public infrastructure kills innovation and successful implementation of real solutions.
Remember: if we think small, the results will be small. This country did not achieve greatness by putting road blocks in the way of progress. It achieved greatness by understanding the sense of urgency and the need to encourage firms of all sizes to be a part of solutions that will be the key to our future success.
-- Gary Hausdorfer, CEO & President, Cofiroute USA