BANGALORE (Reuters) - Canadian truckers are moving into less traditional areas such as collecting garbage and delivering parcels after the recession exposed their reliance on core trucking businesses like cargo and small freight shipping.
Mid-tier truckers TransForce Inc, Mullen Group and Contrans are looking to broaden their portfolio of specialized, niche services to guard against a return to pricing pressures.
"Deal sizes in waste management, for instance, can be all across the map," said Jason Granger, an analyst with BMO Capital Markets Canada, predicting deals in the $5-$10 million range, rising to $50 million in waste management.
Walter Spracklin, an analyst with RBC Capital Markets, expects TransForce and Contrans to be the chief gainers from acquisitions in waste management -- from garbage collection to landfills.
"It's a pretty good strategy to be going into -- a higher margin business with a little less competition and higher barriers to entry," Spracklin said.
Contrans, which has already made two acquisitions in waste management including assets from BFI Canada Inc in the past two months, reports quarterly results on Thursday, with investors looking for more on the company's acquisition strategy.
Niche services, which are tough to enter due to their specialized nature and technological requirements, are largely unaffected by spot market pricing, making them attractive investment targets.
As the economy picks up, so trucking should rebound, triggering more competition in truckers' core less-than-truckload (LTT) and truckload (TL) businesses, and again putting pressure on pricing.
Truckers' volumes and prices slumped during the downturn, hurt by low freight demand and trucking overcapacity, pushing even giants like YRC Worldwide close to the wall.
Package and courier and oilfield services are other non-traditional acquisition targets that could boost truckers' revenues over the next year.
TransForce is the only significant Canadian player in a package and courier delivery business dominated by Deutsche Post's DHL and U.S.-based UPS and FedEx Corp.
"Given that DHL has scaled down its operations in the U.S., there may be an opportunity for TransForce's package and courier business to partner DHL in Canada," said BMO Capital's Granger.
TransForce CEO Alain Bedard said last week that a major chunk of next year's C$60 million capex budget would be invested in the package and courier and specialized services sectors.
Both TransForce and Mullen, which posted better-than-expected profits last week, will be eyeing deals in energy services as activity picks up in the Canadian oilsands during winter.
Mullen's dewatering business -- which involves cleaning the tailings ponds around mines -- accounted for just C$10 million in revenue in 2004, but has grown 10-fold and could expand even faster through acquisitions.
"Given all the focus on water management around the oilsands, the dewatering business looks to be a terrific strategic move for Mullen," said Dana Benner, an analyst with Stifel Nicolaus & Co.
Truckers are eyeing distressed assets, following TransForce's lead in its $32 million acquisition of assets of Enquest Energy Services in July, to augment its oilfield services segment.
"Buy today while it's cheap, as opposed to when the recovery is back up and prices rise," said Spracklin.
Additional reporting by Viraj Nair in Bangalore, Editing by Ian Geoghegan