PwC says transportation and logistics deals slipped in Q4, but 2012 should be a good year

Fourth quarter transportation and logistics merger & acquisition activity was not as strong as it was in the third quarter, but the end results were mostly impressive, according to PricewaterhouseCoopers (PwC) quarterly report “Intersections: Fourth Quarter 2011 global transportation and logistics industry mergers and acquisitions analysis.”

According to the report, fourth quarter deal value—for deals valued at $50 million or more—was $12.8 billion—and represents 32 announced deals. This is below the third quarter, which saw 46 announced deals at $14.2 billion and the second quarter’s $13.4 billion, but it was ahead of the first quarter’s $10.9 billion. The average deal value for the fourth quarter was $400 million. Of the 32 announced fourth quarter deals, four involved U.S.-based targets or acquirers.

Of the fourth quarter deals, the breakdown by mode for deals valued at $50 million or more was as follows: 34 percent were rail, 4 percent were trucking, 19 percent were logistics, 11 percent were passenger ground, 14 percent were shipping, and 18 percent were passenger air.

For all of 2011, PwC reported that there were 170 deals valued at greater than $50 million, with a total value of $51.3 billion, compared to 2010, which had 186 deals valued at $107.9 billion. The firm said that the reason for the $56.6 billion gap was due to the fact that there were 19 deals valued at $1 billion or more in 2010 compared to 11 in 2011.

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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending.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 third quarter looked very strong, but when discussing it early in the fourth quarter we were a little nervous that the worldwide economic events, which began in August or so, would give us a kind of a hangover [regarding deal activity] in the fourth quarter,” said PwC U.S. Transportation and Logistics Sector Leader Ken Evans in an interview. “Sure enough we did see that happening, with a decrease in deal activity in the fourth quarter.”

But now in 2012, Evans said things feel a little bit more stable, adding that PwC expects 2012 to be another strong year on the transportation and logistics deal-making front for various reasons.

One reason he cited is increasing deals happening in Russia such as the fourth quarter’s $4.22 billion completed deal of Freight One, a railroad carrier, from state-owned Russian Railways by Universal Cargo Logistics. Russian-based deals could continue to rise, because of a broad cross-sector privatization plan from the Russian government that is expected to raise a significant amount of capital.

“We also see more deal deals in the ocean shipping industry largely because there is overcapacity throughout much of this business, and we have seen some transactions in and out of bankruptcy and are likely to see more of those as the industry tries to right-size itself and continues strategic planning for the future,” said Evans.

Another area that could contribute to more deals in 2012 is infrastructure in emerging and developing countries. Evans said that infrastructure-related deal activity in 2001 comprised about 30 percent of all deals in emerging and developing countries and grew to 50 percent by 2011.

This activity is expected to continue, and Evans said will likely pick up in developed countries, too, mostly due to the large deficit and financial restructuring occurring through debt-related issues in Europe and America, as there will be continuing pressure to make up for the shortfall in tax revenues through asset sales by government entities.

While the number of U.S.-based targets or acquirers was again low in the fourth quarter, the report notes that the health of the U.S. economy should spur more U.S. deals in 2012, coupled with the pending increase in U.S. capital gains tax having the potential to influence domestic deals. What’s more, the dollar gaining strength in the fourth quarter likely put a strain on companies outside the U.S. looking to make U.S. acquisitions.

“In the fourth quarter, most people were having difficulty forecasting what their companies were going to look like from a performance standpoint in 2012,” explained Evans. “There was a lot of uncertainty in the marketplace and worry about another financial meltdown and liquidity concerns throughout Europe. This made some U.S. companies pause and defer plans they had until there was more visibility.”