Transportation and logistics deal making activity has a strong second quarter, says PwC
August 04, 2011
At the end of the first quarter, Pricewaterhouse Coopers (PwC) said that transportation and logistics merger & acquisition activity was picking up steam. That thesis seems to have gained momentum based on the data in the firm’s quarterly report, “Intersections: Second Quarter 2011 global transportation and logistics industry mergers and acquisitions analysis.”
For the second quarter, PwC reported that second quarter deal value was $13.5 billion compared to $18.4 billion for the same period in 2010 and is up about 30 percent from the first quarter’s $10.4 billion in total deal value.
There were 47 deals valued at $50 million or more in the second quarter, which represents six more deals than the second quarter of 2010, while average deal value at $300 million—for deals at $50 million or more—down from $400 million a year ago. And of these 47 deals, only nine involved U.S.-based targets or acquirers.
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all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending.
PwC noted in the report that deal activity picked up in the second quarter due in large part to the return of “mega deals” in the quarter, which have a disclosed value higher than $1 billion such as the $3.69 billion acquisition of Continental Airlines by UAL Corp, the parent company of United Airlines.
“We have seen and continue to see a gradual improvement in deal activity going back to the low point in 2009, when deal activity was very much diminished by the financial crisis,” said PwC U.S. Transportation and Logistics Sector Leader Ken Evans in an interview. “Now, financing is much more available and strong companies have rebuilt their liquidity and are very interested in growth by acquisition where it makes sense.”
While there are some good signs out there, Evans cautioned that there are also headwinds, too, relating to global economic activity, especially with increasing signs of a negative economic outlook in the United States.
But he noted there are certain “hot spots” in Asia and Brazil, which could point to an increased economic trajectory on the deal-making front.
Evans said that even though the U.S. still lags deal-making activity in other regions, there are many U.S.-based companies with sufficient liquidity that they have not spent on employees or capital improvements, adding that there is an appetite in the U.S. for acquisitive growth if the right deals come along.
“Things are not frozen in place like they were in 2009,” he said. “Financial buyers are back in the market, because financing is more available and pricing has been very strong, meaning there have been competitive buyers for the deals out there and it has driven pricing up from where it has been in past years.”
As conditions in the U.S. are slowly improving, the report noted that mega deals involving U.S. entities are still below pre-leverage bubble levels due partly to the slow pace of the economic recovery.
Also factoring into this are mode consolidation, high regulatory barrier for air and railroads, and low barriers to entry in trucking, which can make M&A a less attractive strategic option, according to PwC.
As was the case in the first quarter, transportation infrastructure-related deals continue to gain traction. This was made clear with related deals
“We have long recognized the importance of infrastructure regarding the economy and supply chain, whether it is roads, bridges, tunnels, airports, ports, or railroads,” said Evans. It has been a significant builder in the U.S. for the economic engine and move products and people from place to place.”
But the activities in Washington regarding the debt ceiling and attempted focus on deficit spending are approaching a point politically where it is going to be easier to sell assets to raise money than it is to make significant cuts or raise taxes to get spending in line with revenue, said Evans.
And as a result of this the attitude towards private spending in public works is changing and will continue to change, bringing more opportunities for investors to get involved.
When asked how future M&A activity may play out for the rest of this year and into next year, Evans noted that we are at a critical point.
“If we back up into a more recession-type environment with no GDP growth or small GDP growth, that could put a damper on acquisition activity,” said Evans. “On the other hand, if we keep plugging along and see positive GDP growth, activity could continue at current levels and even increase.”
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