M&A Activity Subdued in Transportation, Logistics Sectors
Merger and acquisition (M&A) activity in the transportation and logistics industry remained steady during the fourth quarter of 2014 according to Intersections, a quarterly analysis of global deal activity in the transportation and logistics industry by PwC US. However activity for the whole year was relatively weak, finishing near 10-year lows.
“M&A activity in the fourth quarter remained consistent with the subdued levels we witnessed throughout 2014, however, we are cautiously optimistic regarding 2015 as the recovery in many advanced economies continues,” said Jonathan Kletzel, U.S. transportation and logistics leader for PwC. “The U.S. economy remains strong and a strong U.S. dollar makes acquisitions by U.S. players cheaper for offshore targets. Countries in Europe are beginning to see improvement and emerging and developing economies continue to grow. Looking forward, one key driver of improved activity across modes will likely be the decline in fuel costs globally. We expect these prices to improve profitability and shore up balance sheets, providing additional capital for more inorganic growth through M&A.”
There were 208 transactions (worth $50 million or more) in 2014 for a total deal value of $75 billion, compared to 205 deals worth $75.1 billion in 2013. Given the slight increase in volume and with value staying flat, average deal value fell from $366 million in 2013 to $361 million in 2014. The fourth quarter of 2014 represented the lowest deal value and second lowest volume of the year, with 53 transactions totaling $15.9 billion. This denotes a substantial decline on a year-over-year basis as the fourth quarter of 2013 recorded 80 deals worth $30 billion.
Much of the decline in deal activity and value can be attributed to megadeals (those valued at $1 billion or more) as the year closed with fewer large acquisitions than seen previously. Among the megadeals recorded in 2014, infrastructure targets remained of interest to investors, accounting for $13.9 billion in deal value. These deals, such as toll roads and ports, are attractive because pension funds and other investors value the stable, long-term returns and strong barriers to competition.
Deal activity in 2014 was driven by the shipping and trucking industries, which together accounted for almost half of the year’s activity (47 percent). According to PwC, a significant increase in trucking deals drove 20 percent of annual volume compared to 12 percent in 2013. “As we noted in our third quarter analysis, the number of trucking transactions is picking up and these acquisitions were once again a major focus of the market during the fourth quarter. This is largely due to the highly fragmented industry, as larger companies acquire smaller ones in order to achieve increased market share. At the same time, we believe that overcapacity in shipping is driving consolidation in that mode as larger players attempt to reduce competition and create more effective economies of scale,” Kletzel continued.
Regionally, acquirers from Asia and Oceania continued to dominate 2014 M&A volume, involving approximately half of global activity, led in large part by deals involving China. European-based companies accounted for the second highest volume of deals (28 percent), aided by two United Kingdom-related megadeals, followed by North America-based companies representing 23 percent. Continuing the recent trend, the majority of 2014 deal activity consisted of local market transactions (69 percent) and cross-border activity was substantially lower in emerging economies (11 percent of all deals by these acquirers) than it was in advanced nations.
“The preference toward local deals reflects less risk-taking on the part of acquirers as local market synergies can often be easier to attain given the tendency for there to be more overlap in transportation networks and existing operations. As the economy continues to improve, we may see an increase in cross-border activity, but we expect local transactions to remain the area of focus for transportation executives in 2015,” concluded Kletzel.
