Transportation and logistics M&A activity sees Q3 gains, says PwC

Transportation and logistics merger and acquisition (M&A) activity in the third quarter saw annual gains, which were driven by smaller deals in the trucking logistics, shipping, and passenger air sectors, according to data issued in the Intersections report by PwC this week.

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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending, and only deals valued at $50 million or more are included.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 quarter, PwC said there were 48 transportation and logistics transactions valued at $50 million or more for a total of $13.6 billion, which topped the 44 deals for a cumulative $12.1 billion recorded during the third quarter of 2013.

PwC said average deal value and volume dropped sequentially, with the second quarter seeing 52 deals for a cumulative $20.6 billion, which was largely driven by what it calls “mega deals,” which are valued at $1 billion or more. In 2013, infrastructure-related deals represented the bulk of mega deals, and PwC said it expects larger infrastructure deals to return to the market and bring higher deal values along with them in the future. And it added that with limited mega deals in the third quarter along with trucking-related M&A, which usually has lower valuations, the end result was lower third quarter average deal value.

Looking at specific transportation and logistics sectors, PwC noted that trucking and logistics in total accounted for more than 40 percent of third quarter M&A activity, with trucking companies in North America keen on expanding their geographic reach, expanding their truckload business, enhancing logistics offerings, and adding capacity as demand increases.

When asked what is driving the increase in smaller deals in the trucking, logistics, shipping and passenger air modes, Jonathan Kletzel, PwC’s US Transportation and Logistics Leader told LM that in the case of trucking, shipping, and logistics, many of the companies are smaller, so the overall size of acquisitions tends to be lower. And in the case of airlines, he said, many recent deals have been purchases of minority stakes, which all else equal will tend to have smaller deal sizes than acquisitions of majority stakes in other airlines.

“These deals are already occurring at a fairly robust level, and there is room for more M&A due to expansion opportunities as it pertains to geographies and services,” he observed.

And looking ahead, Kletzel explained that with deal volume up compared to the first half of 2014, that trend is likely to continue in the coming quarters.

“Volume will likely remain strong as the shipping and trucking industries remain fragmented and have room to consolidate,” he noted.

When asked if current deal levels are down compared to historical norms, Kletzel said it really depends on which years are used as a comparison.

“Levels are down if recent totals are compared to the years leading up to the financial crisis (2005-2007),” he said. “However annualized 2014 deal levels are at, or above, the totals of most years before and after this period.”