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PwC: Transport, Logistics Starts 2014 Subdued

April 28, 2014

First quarter deal activity matches lowest level in nine quarters; trucking and shipping lead transaction activity

Merger and acquisition (M&A) activity in the transportation and logistics industry began 2014 on a soft note, with the total volume of deals matching the lowest level seen since the fourth quarter of 2011. Total first quarter deal activity and value were down from the spike in the fourth quarter of 2013, but average deal sizes were generally in line with the past several years, according to PwC US.

There were 37 transportation and logistics transactions worth $50 million or more in the first quarter of 2014, totaling $16.1 billion, compared to 75 deals worth $27.2 billion in the fourth quarter of 2013. However, overall deal volume was generally flat with the 41 deals recorded in last year’s first quarter, which accounted for $16.2 billion in value. Despite the decrease in sequential deal activity, average deal value increased to $434 million in the first quarter of 2014, compared to $363 million in the fourth quarter of 2013 and $396 million in last year’s first quarter.

“Following brisk M&A activity in the fourth quarter, deal volume pulled back in the first quarter of 2014, returning to the subdued levels we have witnessed over the past two years,” said Jonathan Kletzel, U.S. transportation and logistics leader for PwC. “While confidence among management teams is improving as the global economy recovers, acquirers have remained cautious and continue to pursue small, local deals. They are continuing to focus on consolidating existing markets and strengthening their core services, while emphasizing cost synergies. With the major transaction activity in the airline space largely behind us, deal volume is now being driven primarily by the shipping, trucking and logistics industries, particularly in those regions where market fragmentation is leading to less favorable economics.”

First quarter local market deals worth more than $50 million reached a new high, representing 78 percent of activity – a growing trend since 2008. According to PwC, Asia and Oceania continued to be the most active region in the first quarter, as U.S. and Eurozone involved announcements remained below pre-financial crisis levels. North American acquirers recorded only nine deals valued at more than $50 million during the first quarter of 2014 while those from Asia and Oceania represented 17 transactions.

Mega deals (worth $1 billion or more) remained flat in the first quarter, with a total of four mega transactions compared to six mega deals in the fourth quarter of 2013 and four mega deals in the first quarter of 2013.  Two of the first quarter of 2014 mega deals occurred in Brazil, while China and the United Kingdom accounted for one mega deal apiece.

“Despite decreased activity in developed markets, deal valuations have continued to recover across most modes, supporting sector multiples that are near historic highs. In contrast, valuations for emerging market assets have remained relatively steady,” said Kletzel. “We expect emerging market deal activity to continue to contribute meaningfully to total M&A volume across the transportation and logistics sector in the year ahead, as a wide range of players continue to focus on consolidating their market positions.”

Strategic investors continued to account for the majority of deals worth $50 million, recording 60 percent of deal volume in the first quarter. According to a report from PwC’s Deals practice, Specialty Third-party Logistics Providers, one area gaining momentum with both strategic and financial buyers is specialty third-party logistics (3PL) providers – companies that deliver complex, expertise-based services in areas ranging from fulfillment to transportation to configuration.

“We expect interest in these deals to continue into 2014 as healthy margins make specialty 3PL providers compelling targets for financial buyers and as strategic investors look for opportunities to differentiate their services in a crowded market via new and innovative offerings. Acquiring the specialized talent, processes, and technology of a specialty 3PL provider is one way to enhance their existing capabilities while meeting the changing needs of their clients,” concluded Kletzel.

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