Logistics news: PwC reports cites solid M&A activity in Q4, but annual volume is down slightly
Jeff Berman, Group News Editor -- Logistics Management, 3/1/2009
New York — While the economic storm in the United States and abroad created plenty of turbulence for both shippers and carriers, those conditions didn't negatively impact transportation and logistics merger & acquisition (M&A) activity, according to a report from Pricewaterhouse-Coopers (PwC).
In the quarterly report entitled "Intersections: Fourth Quarter 2008 Mergers and Acquisitions Analysis," PwC said that in the fourth quarter there were 43 announced M&A deals in the transportation and logistics sectors worth $50 million or more. This is in line with the 46 deals that occurred in the previous quarter. The annual total for 2008 was 181—just shy of 2007's 192 but ahead of 2006's 167.
The average value of announced deals worth $50 million or more was $533 million for all of 2008 and $453 million for the fourth quarter. This tops 2007's $421 million average deal value, but is well short of 2006's $964 million. It's important to note that deals cited by PwC in this report represent all announced deals for 2008—as opposed to completed deals—and do not parse out deals that were withdrawn, intended, or pending.
While the pace of deal making appears to have held steady over the course of 2008, it appears to be slowing and is likely to slow down further in early 2009, according to PwC U.S. Transportation and Logistics Sector Leader Ken Evans.
"We are very reluctant to say deal activity will continue, but I think there is some carryover from deals that took place earlier in the year into the fourth quarter numbers," said Evans. "There is definite slowing in the U.S. market, and we will see that continue until some of the uncertainty in the economy and credit markets becomes clearer, and even then it is hard to tell. We see a continued pattern of slowness in the U.S. and some increasing slowness globally."
The weakness—in terms of value—of deals in which a U.S.-based entity was involved as an acquirer or target remained low as it did throughout much of 2008. As an example of this, deals involving a U.S. entity represented only one-third of the total deal value in 2008.
And U.S.-based deals worth $50 million or more dipped from 54 in 2007 to 36 in 2008, with just four of those occurring during the fourth quarter of 2008.
Many of the reasons for the decline in the number of U.S. deals being made remain the same, due to things like frozen credit, tightened inventories, lack of consumer spending, and exorbitant energy prices throughout much of 2008, among others.
Meanwhile, the economic forces, which have dampened the pace of deal activity in the U.S. have not yet curbed growth elsewhere, noted Doug Turner, president of Toronto-based Obsidian Transportation and Logistics Consulting. "I think that there are structural reasons for this," said Turner. "The non-U.S. deal volume growth is being driven mainly by strong growth in the emerging markets, whereas Europe was flat."
Turner pointed out that Asia and Oceania deals grew by 20 percent from 47 to 56 in 2008, and South America more than doubled from 8 to 17. He opined that the accelerating pace of activity in the emerging markets is not a surprise, given the highly fragmented composition of domestic markets in the emerging economies generating a lot of opportunities and the growing interest in these markets by the major players.
PwC's Evans said it was a "little surprising" that fourth quarter deal making activity stayed as high as it did, but looking ahead to the rest of 2009, he said it may be unlikely to see continued growth at these previous levels.
"The biggest driver will be transportation and logistics getting a clear picture of what the future is going to look like, as these companies typically lead economic cycles by being the first to go into recession and are typically first to come out," Evans added. "But that has not happened yet. Once we get to the bottom, we may see some pent up demand or opportunistic acquisitions and stronger companies extending market share by acquisition."
View All On-Demand Webcasts
