Despite mixed Q2 results, transportation & logistics deal making prospects look bright

Second quarter merger and acquisition (M&A) activity in the transportation and logistics sectors saw mixed results on a sequential and annual basis, according to data released today by PwC in its report entitled “Global Transportation & Logistics M&A Deal Insights Q2 2016.” 

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announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending, and only deals valued at $50 million or more are included.

For the second quarter, PwC said that total transaction value was up 20 percent compared to the first quarter at $34 billion and down 22 percent compared to the second quarter of 2015. And it added that there were 51 deals announced in the second quarter, which was down 18 percent annually.

Some of the report’s other key takeaways include:
-financial buyers deal activity (both value and volume) decreased in the quarter as compared to the second quarter of 2015, with deal value decreasing 54 percent and deal volume falling 8 percent, with a 29 percent decrease in financial buyers’ deal value and a 33 percent increase in deal volume compared to the first quarter;
-local deals (transactions by targets and acquirers within the same borders) comprised 67 percent of total deal volume and 90 percent of total deal value, with four of the five megadeals (that are $50 billion or more) in the quarter being local;
-North America had 8 local deals valued at $7.506 billion, 1 inbound deal at $105 million, and 1 outbound deal at $56 million;
-Asia and Oceania had 28 local deals valued at $21.203 billion, 2 inbound deals valued at $312 million; and 2 outbound deals valued at $206 million

Andy Schmahl, Partner, PwC Transportation & Logistics said that the total deal value for the second quarter was not surprising, as trucking and shipping deal value has been trending upwards for the past two years and paced by transactions in Asia and Oceania.

“Deals in the Transportation & Logistics space are being driven by a need for companies (especially in logistics) to improve their capabilities and offerings to customers,” he said. “On the supply side, there are new business models and new technologies being introduced every quarter.  On the demand side, customer expectations of transparency, speed, cost and ease are increasing.  Often times the best way to adapt to these new paradigms is through acquisition.” 

When asked why Asia continues to he the leading region for deal volume in recent years,  Schmahl explained that many of the highest value transportation and logistics deals in Asia have been reverse mergers, allowing previously privately-held logistics companies to access the public capital markets without doing an IPO.  These firms, he noted, believe they need access to capital markets to continue to fuel investment in capacity/infrastructure to meet the large and growing transportation needs within Asia - largely driven by e-commerce and also to more effectively compete with integrated global competitors.

The decline is financial buyers activity stems from the strategic rationale for trade buyers has been increasing recently, he said, with financial buyers likely being priced out of a lot of deals.

“Beyond that however, activity in the T&L sector is driven by domestic market consolidation and participants seeking access to capital,” he said. “Though financial buyer activity has been relatively steady over the past three years, total deal value has been increasing for trade buyers. Despite a low quarter, a decline in financial buyer activity is not certain.”

Looking ahead, Schmahl said it is reasonable to expect brisk activity ahead on the deal making front, due to the need for companies to not only add capacity but to also grow capabilities through the usage of new technologies and new services that will continue to drive tie-ups in the sector.

PwC said that there is a strong positive outlook for global M&A activity across all sectors, continuing an upward five-year trend of consistent growth and steady recovery in the U.S.

Other drivers the firm noted include: the continued drive by corporations to outsource logistics as it becomes a more specialized and technology-driven functions; the continued expansion of e-commerce and demand it creates for investment in the logistics sector; and globalization and expansion of world trade creating the need for advances in technology and growth in the transportation and logistics sector.