Logistics business: PwC report indicates Q3 transportation and logisitcs M&A activity inches up
Rate of activity shows growth, but future gains are tied to improving freight volumes and looser credit accessibiity
Jeff Berman, Group News Editor -- Logistics Management, 11/19/2009
NEW YORK-Compared to the
first half of 2009, transportation and logistics merger & acquisition activity
(M&A) showed signs of emerging from economic doldrums in the third quarter,
according to data released this week by PricewaterhouseCoopers (PwC).
PwC's
quarterly report, "Intersections: Third-quarter 2009 global transportation and
logistics industry mergers and acquisitions analysis," revealed that deal value
in the third quarter of $6.2 billion topped the first half of 2009, which came
in at $5.4 billion. And PwC said that there were 20 deals valued at $50 million
or more, with 16 excluding deals with U.S.
targets and/or acquirers, and 4 deals with U.S. targets and/or acquirers. In
the first half of 2009, there were 31 deals at $50 million or more. PwC said
that the third quarter uptick can be attributed to passenger air deals, which
involved entities in the Asia and Oceania regions and some smaller deals
involving U.S.
entities.
Two
deals of particular significance, which helped drive quarterly gains were two
large deals that each was more than $1 billion: the acquisition of Shangai
Airlines by China Eastern for $1.0 billion, which is pending, and a Spain-based
investor group's $1.24 billion bid for United Kingdom-based National Express
Group PLC, which was withdrawn.
Deals
cited by PwC in the report represent all announced deals for the quarter-as
opposed to completed deals only-and does not parse out deals that were
withdrawn, intended, or pending.
Average
deal value for deals worth $50 million or more-at $308 million-also were up in
the third quarter compared to the first half of the year, which averaged $227
million. The report indicates that aside from the resumption of large deals in
the third quarter, most deal making activity stems from smaller deals and those
with undisclosed values.
Going forward, PwC expects the number of M&A activity
attributable to larger deals is likely to gradually improve as credit markets
recover and rising stock markets provide strategic acquirers with the financing
necessary to engage in larger deals.
"The
credit markets appear to be opening up a little bit in conjunction with private
equity interest increasing," said Ken Evans, PwC U.S. Transportation and
Logistics Sector Leader. "We are not approaching 2007 levels yet, but overall
activity in the third quarter was largely positive."
For a
healthy return to occur to transportation and logistics M&A activity with a
freight- and logistics-minded focus, Evans said freight volumes need to show meaningful
and sustained upward movement. And he added that the recently announced acquisition
of BNSF Railway by Berkshire Hathaway is a significant event.
"A
lot of people are reading into that deal as a sign that U.S. markets
are coming back, and freight is going to start moving again," said Evans. "That
buoyed sprits on the railroads and also positively affected a lot of trucking
companies and other logistics service providers. If more freight moves on the
railroads, a lot more freight will also go on the roads as well. That leaves
people feeling optimistic, although it is not being felt in terms of freight
volumes rising yet. This optimism will lead to more deals, some of which will
be distressed due to a deep, long slump for many companies. And others will be
viewed as positioning for the upturn."
In
terms of what types of groups are pulling the trigger on deals, PwC said that
financial investors represented 35 percent of quarterly deal volume, which is
up from 16 percent in the first half of the year. The 65 percent balance is
made up of strategic investors. Evans said the rise in financial investors is
due increased access to financing, which has helped private equity and other
financial investors that like to leverage deals to improve the possibility of
higher equity returns.
The
credit markets, coupled with some stabilization in the freight and credit
markets, are hopefully at the bottom of the downturn, noted Evans, and this has
led to an exit of some negative news and may lead to a better overall outlook
for dealmakers.
"This
combination is bringing investors back, and I would suspect that we will see
that percentage grow a little bit more over the upcoming few quarters," said
Evans. "I am optimistic that the number of deals in the fourth quarter will be
comparable to the third quarter and beginning in 2010 we may see continuing
increase in deal activity. Some people think 2010 will be a decent year, and
others think it will be relatively flat. We may see some re-positioning and
foundational work being done for 2011. Companies with strong balance sheets and
cash positions are going to be looking for opportunities to grow by acquisition,
and I believe we may see increasing activity in 2010 as a result that may
exceed relative freight volume increases."
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