PwC reports mixed Q1 transportation and logistics deal activity

Current trend lines for deal making activity in the transportation and logistics sectors appear to be mixed, according to research recently 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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending, and only deals valued at $50 million or more are included.

In its “Global Transportation and Logistics M&A Deal Insights 2017,” report PwC noted that total first quarter deal value at $18.2 billion was down 38 percent compared to the first quarter of 2016 and was up 2 percent compared to the fourth quarter of 2016. There were 63 transportation and logistics deals in the first quarter, which was up 26 percent annually and down 9 percent compared to the fourth quarter.

And there were three megadeals, which PwC defines as transactions with announced value greater than $1 billion comprised, in the first quarter, accounting for 27 percent of first quarter deals, down sharply from the 60 percent of fiscal year 2016 deal value.

PwC US Transportation and Logistics Deals Leader Darach Chapman said in an interview that the primary factor behind the decline in value on a year-over-year basis for Transportation & Logistics deals is the drop in megadeals between the quarters.

“Q1 2016 saw four megadeals, including two of the largest deals of 2016, totaling $15bn value, whereas Q1 2017 saw three megadeals totaling $4.9 billion in value,” he said.

On a sequential basis, the three first quarter megadeals in the first quarter at a total of $4.9 billion came on the heels of three megadeals in the fourth quarter of 2016 with a combined value of 12 billion.

Chapman said that this six-month period represents the lowest level of megadeal activity during the last three years and likely be a function of the uncertain political environment and the fact that megadeals are what he called “bigger bets.”  

On the deal volume side, though, things were more positive.

“In terms of volume, Q1 2017 saw increases in deal activity across several subsectors, including Shipping, Trucking, Logistics and Passenger Air, suggesting an underlying M&A buoyancy across the sector,” he said.

Looking ahead, Chapman explained that PwC sees the underlying uptick in deal volume in both the fourth quarter of 2016 and the first quarter of 2017, with both up 20 percent annually, as a positive indicator that the drivers of deal activity continue to exist in the sector and a $5bn merger announcement in April [between truckload carriers Knight and Swift] as a signal that the megadeal confidence may be returning. 

On a regional basis, the Asia and Oceania region again paced deal activity, with 41 percent of total deal value and 51 percent of total deal volume, even though deal value was off in the first quarter.

“The primary driver of deal volume in the Asia & Oceania region is the growth in e-commerce (and the corresponding logistics) in Asia,” Chapman said. “As e-commerce growth has continued to expand, logistics companies are competing with each other to capture a greater share of the market.  Companies that can't expand fast enough will lose market share. This is driving companies to M&A as a way to achieve scale as rapidly as possible in order to maintain / gain market share.”

From an investor-type perspective, PwC said that a decrease in financial buyer activity resulted in a drop in first quarter deal volume, while strategic buyers increased deal activity for both deal volume (up 48 percent) and value (up 11 percent.

In some cases, given the current economic environment, deals getting done today may be viewed by a financial investor as being ‘expensive” and as such are more difficult to gain support through an investment committee, Chapman said.

“These types of deals require a more synergistic business case to justify the purchase price,” he explained. “Strategic players are finding more value in acquisition targets than a simple turnaround or buy-and-hold.  These strategic buyers believe there is more value to be unlocked through value chain migrations, geographic expansions, scale, etc. which is driving a shift towards strategic acquirers. “