Logistics business: PwC report cites steep decline in transportation and logistics M&A activity
Jeff Berman, Group News Editor -- Logistics Management, 5/20/2009
NEW YORK—Given today’s current economic conditions, it does not come as a major surprise that transportation and logistics merger & acquisition (M&A) activity was down in the first quarter. That was the main takeaway of a recent report from Pricewaterhouse-Coopers (PwC).
The firm’s quarterly report, “Intersections: First-quarter 2009 mergers and acquisition analysis,” said that in the first quarter there were 18 announced (M&A) deals in the transportation and logistics sectors worth $50 million or more. This is a steep drop off from the fourth and third quarters of 2008, which came in at 43 and 46 deals, respectively.
The average value of deals—for those with a value of $50 million or more—also suffered, with the first quarter average coming in at $159 million, compared to 2008’s $513 million average. PwC said this was largely attributed to a lack of large deals worth $1 billion or more. These deals were replaced by minority stake purchases, which represented 39 percent of the first quarter’s deals and were ahead of 2008’s 30 percent. It is important to note that deals cited by PwC in the report represent all announced deals for the first quarter—as opposed to completed deals only—and does not parse out deals that were withdrawn, intended or pending.
PwC officials told LM in March that the pace of transportation and logistics M&A activity was slowing down early in 2009 and noted it was likely the rate of deal activity from recent years would continue.
“What we have seen in this first quarter is really what we expected back in the fourth quarter when we saw the economy falling off a cliff, especially in the United States and then in other parts of the world,” said Emeric Deramaux, director in PwC’s Transaction Service Strategy Group. “M&A activity was already slowing down some in the fourth quarter of 2008 and now we can see activity is minimal especially when compared to historical levels. In the U.S., the recession has been steep over the last two quarters, and we have seen a trend of fewer U.S. deals in the last year, because of the credit crunch. And now current conditions make it much more difficult to envision a deal for transportation or logistics companies.”
The lack of U.S deal activity is not to be under-stated, with the report indicating that non-U.S. deals comprised 94 percent of total deal volume—or 17 deals—was from foreign entities, and just one U.S. entity announcing a deal during the first quarter.
While the credit market has been a major deterrent to deal making, PwC said it has seen some “signs of life” in the credit markets, with global debt underwriting up significantly in the first quarter compared to a year ago. The report added that overall economic recovery is an essential condition for a significant increase in transportation and logistics deal activity over the balance of 2009.
And should the economy experience a meaningful recovery, PwC said that may lead to increased deal activity on the transportation infrastructure front. The reason it cited for this is that “both developed and developing nations have strong incentives to leverage private capital for transportation infrastructure investment.” And the report went on to say that the future for transportation infrastructure privatization deals is relatively bright despite credit market conditions and economic concerns.
In order for the economy to rebound and potentially spur transportation and logistics M&A activity, freight volumes and demand will have to make a meaningful recovery over a significant period. Ken Evans, PwC U.S. Transportation and Logistics Sector Leader, said that one positive sign to get things possibly moving in the right direction would be for the Institute for Supply Management’s Manufacturing Index to be above a reading of 50 or more (April’s was 40.1).
“This would tell us that manufacturers are picking up production, and the supply chain that feeds them is going to have to get busier,” he said. “That is a particular help to trucking companies, because once things get constrained the need for expedited freight improves. And inventories during this recession are starting to come down…when the index comes back up, there will be a need for manufacturers to replenish their inventories.”
And when rail and truck and to an extent container freight tonnage pick up over prior year and quarter levels, Evans said a flurry of deal making activity could occur, albeit not on a huge level, as transportation typically leads the beginning of an economic recovery.
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