PwC points to increased transportation and logistics deal activity in the second quarter
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With the economy in better shape than it was a year ago, despite recent signs of slippage, it appears that transportation and logistics merger & acquisition activity is on the mend, too, according to PricewaterhouseCoopers’ recently-released data.
In its quarterly report, “Intersections: Second Quarter 2009 global transportation and logistics industry mergers and acquisitions analysis,” PwC said that second quarter deal value at $13.1 billion was slightly below the first quarter’s $15.9 billion and 63 percent better than the $4.8 billion total deal value for the second quarter of 2009.
PwC said there were 29 announced second quarter deals worth $50 million or more, with 24 excluding deals with U.S. targets and/or acquirers and five with U.S. targets and acquirers. Average deal value for deals $50 million or more-at $500 million edged out the first quarter’s $400 million. PwC officials said that the pace of deal activity in the transportation and logistics sector remains above a dismal 2009, and it is apparent when comparing the 29 2010 second quarter deals to the 14 deals in the second quarter of 2009.
They added that U.S.-based companies “demonstrated relative improvement during the second quarter…[with] proportions of total deal volume and value that involved US entities increased over the first quarter.”
Deals cited by PwC in the 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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending.
“Looking at these results, we get the sense that markets are recovering with increased deal making activity year-over-year,” said Ken Evans, PwC U.S. Transportation and Logistics Sector Leader, in an interview. When viewed next to 2009, we had hoped comparisons would improve and they did. There is nothing in these numbers that would indicate a significant softening going forward, however, recent reports of the economy softening have continued to come out and negatively cast a shadow of what is going on…at least in the U.S. Asia seems steady, and Europe is improving, too.”
Evans added he is cautiously optimistic that deal making conditions will remain above 2009 levels, and he noted there has been an increased focus on passenger-related transportation deals, more so than freight-related deals. And he also pointed out that there is a general sense of optimism regarding future freight-related deals.
In terms of the types of investors making deals in the second quarter, strategic investors comprised 62.1 percent of the backing for deals valued at $50 million or more, with financial investors accounting for 37.9 percent, which was ahead of 34.8 percent financial investor activity for the first half of 2010.
“Over the past couple of years, financial investors have tended to rely on financing as a large a proportion of deals as they can to increase their returns on capital for their investors,” said Evans. “They have not been completely on the sidelines, but it is much harder to do deals with their stated return requirements. Strong companies that have been able to withstand the recession have been able to manage their business to not only preserve their companies and in some cases cash and maintain the ability to tap into capital markets. We have seen a real strong presence by strategic buyers being opportunistic along the way. And private equity investors have capital waiting to be invested…and in many industries they are coming back strong right now.”
And with many investors in a “pull back” position and keeping a close on bottom lines during the recession, companies are now starting to show they are anxious to grow again and investors are pointing their dollars towards companies with revenue growth prospects, according to Evans. He said that those companies that have been shrinking capacity to add revenue and grow are the ones being rewarded by investors.
“The general theme of increased deal making activity is true,” said Tom Connolly, managing director of EVE Partners, an Atlanta-based transportation and logistics M&A firm. “There are more deals getting done now than there has been in a while. In the sub-$50 million deal category, values have been flat to slightly up, due to more demand and better access to financing with more private equity-backed transactions.”
When asked what the current main drivers for deal activity are, Connolly pointed to being more competitive and expanding service lines on the strategic side. On the financial side, he explained it is a good time to make deals as companies have come out of trough earnings and somewhat on a growth strategy as volumes and demand have picked up, coupled with improved access to financing.
About the AuthorJeff Berman Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
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