Transportation deals: Transportation and logistics 2007 merger and acquisition volume hits new record says PricewaterhouseCoopers report 

Jeff Berman, Senior Editor -- Logistics Management, 2/14/2008

PHILADELPHIA—As was the case in the third quarter of 2007, transportation and logistics merger and acquisition (M&A) activity reached continued to grow, according to “Intersections: Global Transportation and Logistics Mergers and Acquisitions Analysis,” a quarterly report from PricewaterhouseCoopers.

The report noted that total transportation and logistics deals for 2007 came in at 1,291, which eclipsed the previous record set in 2006. Despite this increase, though, the report indicated that total deal value for the year was $83 billion compared to 2006’s $164 billion.

While the decrease in total deal value may look severe on paper, it is worth noting that these figures represent all announced deals for these time periods—as opposed to completed deals only—and do not parse out deals that were withdrawn, intended or pending.

Ken Evans, PricewaterhouseCoopers U.S. transportation and logistics sector lead leader told LM that data for non-completed deals is included to provide more detailed yearly and quarterly comparisons, because the length of time to complete a deal or have it withdrawn can vary significantly.

And he pointed out that when excluding data for withdrawn deals, total deal value for 2006, 2007, and the fourth quarter of 2007 are $84 billion, $73 billion and $22 billion, respectively. The same holds true for average deal value, which was $1 billion in 2006, $426 million in 2007, and $435 million in the fourth quarter of 2007. But when non-completed deals are removed, the average deal values were $570 million, $399 million, and $443 million for the same time periods.

While talks of a looming recession continue, credit markets remain tight, and the value of the U.S. dollar has diminished, the report said that in light of these market conditions financial investor activity accounted for nearly 45 percent of all deal volume in 2007 compared to less than 40 percent in 2006.

“We thought that we might see some contraction in the number of deals due to things like the tightening of credit markets…and because these deals are based so heavily in financing,” said Evans. “It was thought the availability of financing would retreat a bit in the fourth quarter, but we did not see that at all.”

Evans added that looking historically at transportation and logistics M&A over the last several years, there has been a fair amount of consolidation going on for most transportation and logistics modes. This, he noted, indicates there remains strong interest in the sector from potential buyers.

And it appears that continued growth in M&A activity may continue at a steady clip despite the current U.S. economy situation. The report said that 78 percent of all deals in 2007 valued at $50 million or more occurred outside the U.S.

“Couple this fact with growing recognition that the global economy is not so closely tied to the fortunes of the U.S. economy as it once was and you have good reason to expect continued growth in acquisitions,” said Doug Turner, president of Obsidian Transportation and Logistics Consulting in Toronto. “It does appear that the credit squeeze has not had much of an effect yet. When I talk to my contacts in the private equity world, they tell me that there is still a lot a mid-market capital available for transportation and logistics deals.”

Turned added that whatever effect that the credit squeeze and recession threat might have in terms of curbing the enthusiasm of U.S. firms for domestic and foreign acquisitions still could be offset by the devaluation of the U.S. dollar and the consequent attractiveness of US acquisitions by foreign firms.  

While there was continued expansion in M&A activity in the transportation and logistics sector, one core driver for this growth is the strategic demand for high-quality, mid-sized logistics deals that create synergy, said Ben Gordon, managing director of BG Strategic Advisors.

“We are seeing more deal volume but less value, because mega-deals are giving way to mid-market deals,” said Gordon. “We expect to see smart buyers continuing to accelerate their pursuit of targeted mid-sized acquisitions, while scaling back on the multi-billion dollar mega deals.”