2016 global transportation and logistics M&A heads down, says PwC

Deal making activity in the global transportation and logistics sectors still impressed in 2016, even though it did not match up with 2015’s more lofty levels, according to data issued by PwC.

Deals cited by PwC in its data report represent all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending, and only deals valued at $50 million or more are included.

The firm’s “Global Transportation and Logistics M&A Deals Insights Q3 2016” report” stated that total second half 2016 deal value of $53.3 billion was off by 22 percent compared to the first half of 2016, with total deal activity for all of 2016 down 6 percent annually at $122 billion.

Total 2016 deal volume was off six percent annually at 225, while second half deal volume was up six percent compared to the first half of the year. And megadeals, which PwC defines as transactions with announced value greater than $1 billion comprised 60 percent of total 2016 deal value at 19 deals, down from 2015’s 68 percent at 28 deals.  Fourth quarter deal value at $26 billion and 60 announced deals were down significantly compared to $76 billion and 61 deals for the fourth quarter of 2015.

PwC Transportation & Logistics partner Andy Schmahl told LM there were two reasons driving the spread between the 31 percent decline in deal value and the 6 percent annual decline in deal volume from 2015 to 2016.

“First, in 2015 North America saw a $28B deal between Canadian Pacific Railway and Norfolk Southern [which was not completed],” he said. “This deal greatly inflated the average deal size in the Rail category. Second, the Asia & Oceania region has historically contributed to lower average deal value. A higher share of overall deals made in the Asia & Oceania region in 2016 lead to a reduced average deal size. These changes drove the average deal size down in 2016 across all of the sector categories except for trucking.”

2016 average deal sizes were largely down, including: shipping down 1 percent at $602 million, logistics down 21 percent at $434 million, and rail down 93 percent at $203 million. Trucking, conversely, had a strong year, up 142 percent at an average of $1,326 billion.

When asked what drove the decline for megadeals, Schmahl pointed to a larger share of deals coming from emerging and developing markets, specifically the Asia and Oceania region, which contributed to lower average deal size and a decline in megadeals in 2016.

“While 5 of 28 (18%) megadeals were in emerging and developing countries in 2015, 7 of 19 (37%) megadeals were in emerging and developing countries in 2016,” he said. “In general, megadeals in general tend to be “chunky” and therefore difficult to predict or derive trends from.”

And while North American economic growth maintained a steady pace in 2016, the analyst noted that the Asia & Oceania region saw a relatively higher amount of economic volatility in the past year.

“This volatility lead to opportunities to capture value through acquisition and consolidation,” he said. “Specifically, China saw three megadeals in trucking and Australia saw three megadeals in shipping. The trucking deals in China were heavily influenced by ‘reverse mergers,’ in which the ‘acquired’ company leverages a public shell company ‘buyer’ to quickly and efficiently list on the public stock markets.  This provides more ready access to capital.” 

The significant gains in trucking deals gained traction, as the category may appeal to buyers as technological advances create opportunities to capture value, explained Schmahl.

“Specifically, increased automation in long-haul road freight has the ability to recognize lower fuel costs and the improved safety and reliability of delivery,” he said. “China is a global production center for durable goods and relies heavily on road freight for the transportation of these goods. Many are expecting substantial growth in the e-commerce industry in China.  The various players are scrambling to ensure they have access to enough capital to build sufficient scale to claim at least their fair share of this growth.

Various megadeals in the trucking category in China led to an increase in average deal size in 2016. The deals include:

• Maanshan Dingtai's acquisition of SF Holding for $17B;
• Dalian Dayang Trands' acquisition of YTO Express for $9B; and
• Ningbo Xinhai Electric's acquisition of Shanghai Yunda Freight Services for $3B (with each of these deals serving as examples of reverse mergers)

Looking ahead to 2017, PwC said it expects parcel, courier and express-related deals to “continue to be center stage of M&A and capital market transactions” as they look to increase size and upgrade services to maintain market share in a growing online retail market. And it added that new technology-related deals that are often viewed as disruptors, like Uber’s $680 million acquisition of self-driving truck company Otto, will play a larger role, too. Another driver it cited includes deals in sectors dealing with overcapacity like shipping, air freight and rail.