PwC report notes deal activity is down slightly, but market remains resilient
November 08, 2011
Following the first half of 2011, which showed some signs of increasing transportation and logistics merger & acquisition activity, third quarter activity took a bit of a step back, according to PricewaterhouseCoopers’ (PwC) quarterly report “Intersections: Second Quarter 2011 global transportation and logistics industry mergers and acquisitions analysis.”
PwC said that in the third quarter deal value—for deals valued at $50 million or more—was $11.3 billion—representing 39 announced deals. This was down from the 46 deals at that level in the second quarter, which accounted for $13.4 billion. First quarter deal value was $10.4 billion. Of the 39 announced deals for the third quarter, eight involved U.S.-based targets or acquirers.
Even with the sequential decline in deal value from the second quarter to the third quarter average deal value—at $290 million—was ahead of the first two quarters at $272 million.
Deals cited by PwC in the Intersections 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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending.
The report’s authors said that the pace of deal making activity was down somewhat in the third quarter, due to less activity occurring in emerging markets, as well as European debt issues, and the possibility of a double-dip recession in the United States. But even with these significant negative headwinds, the PwC described the current deal making environment as result in light of these macroeconomic trends.
“We were a little surprised by the resilience of the deal market,” said PwC U.S. Transportation and Logistics Sector Leader Ken Evans in an interview. “Things were a little spotty among all modes, and we are seeing a slight increase in distressed deals, especially with ocean shipping freight rates at all-time lows and related struggles on the international shipping front.”
And even though the economic outlook remains uncertain, Evans said there are an abundance of potential buyers with significant cash and are willing to make moves on the right companies.
He added that in many cases that the due diligence and due process in most cases for deals goes beyond three months and while PwC goes off of announcement dates for deals, the firm notes that many of these deals were initiated before that, which creates a level of lagging that kept announced deal levels relatively high in the third quarter.
Looking ahead to the fourth quarter, with stock market gyrations and the issues with the European economy and Greece, specifically, Evans expects some players to move to the sidelines in the fourth quarter and wait to see how things play out.
PwC Transportation Analyst Michael Portnoy noted that “one of the things most surprising in this report was how resilient the U.S. and Europe were compared to emerging markets.”
When breaking down deals by transportation and logistics modes, PwC found the following: trucking accounted for 11 percent; logistics at 20 percent; passenger ground at 24 percent; shipping at 38 percent; and 7 percent at passenger air. Portnoy and Evans said that these percentage allocations are driven by the mega deal activity which occurred in the quarter, with four announced deals valued at more than $1 billion. Among these deals were a pending acquisition of GE SeaCo Ltd for $1.05 billion by an investor group announced in August and a pending $1.75 billion acquisition of Korea Express Co Ltd by an investor group announced in July.
In terms of deals that have a specific shipper- or transportation and logistics-related focus, Evans pointed to infrastructure-related deals.
“Infrastructure continues to gain traction for mega deals because of the number of years that companies are signing up for concessions with, in most cases, the government,” said Evans. “They tend to be large deals that are heavily focused and sometimes combined deals with strategic and financial investors and almost always have a financial player involved. There remains a continuing focus on these deals, with various world economies really needing the funds to develop infrastructure and build new rail lines and roads that require extensive financial involvement.”
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