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M&A Deals in Logistics Continue to Increase

Nov. 4, 2015
As more companies make the decision to outsource logistics services and turn to third-party suppliers, efficiencies in scale and geographic reach will become critical drivers of inorganic growth.

Despite a decline in deal volume in 3Q compared to the previous quarter, average deal value has continued to increase in each of the last four quarters, according to PwC’s quarterly analysis of M&A activity in the transportation and logistics industry.

As a result, both total deal value and average deal value for the year-to-date are up over 40% and 50% respectively compared to the prior period.

Here is the firm’s commentary on its report.

Logistic companies remained a significant driver of M&A activity in the third quarter, and we expect that to continue. As more companies make the decision to outsource logistics services and turn to third-party suppliers, efficiencies in scale and geographic reach will become critical drivers of inorganic growth. These deals were primarily driven by the need to fill a specific need or gap, gain scale, or expand margins. Also, growing consumer demand as a result of an improving economy and historically low fuel costs are leading to increased freight volume, creating an opportunity for logistics companies to consolidate.

Trucking continued to be an active deal-making segment, as smaller “mom and pop” operators decide to cash out, rather than invest in fleets and attempt to find the increasingly scarce driver talent. In a notable vertical integration play, the more than $3 billion acquisition of Conway Trucking by logistics player XPO Logistics could trigger further deal activity at the larger end of the sector as competition for trucking capacity intensifies.

Megadeals, (deals valued at $1 billion or more), 3Q15 saw lower megadeal activity compared to the previous quarter, with only six deals valued at $18.3 billion. Yet, megadeals represented more than 63% of total deal value for the quarter. Megadeals were primarily driven by companies attempting to increase scale, enhance operations, build transportation networks and expand geographic reach. For example, the $4.55 billion acquisition of Industrial Income Trust’s U.S. logistics portfolio will make Singapore-based Global Logistics Properties the second largest logistics property owner and operator in the United States.

Cross-border expansion continued to be a key driver for many of the deals in 3Q15, particularly in advanced economies, in which more than half of the deals involved trans-national activity. This increase in cross-border deals was primarily driven by strategic investors, and many deals were intended to build a global transportation network and expand operations. Cross-border activity grew in emerging economies as well, although not to the same degree as seen in advanced economies. Activity by financial investors increased to almost 48% in 3Q15 (vs. 44% in 2Q15), as investors continued to expand T&L portfolios. For example, the second-largest deal of the quarter, involved the acquisition of Netherlands-based LeasePlan (a world leader in fleet management) by the financial investor LB Group for more than $4 billion.

There was also a significant increase in marine shipping and related services deals, which drove more than a third of the quarter’s volume, compared to only 13 percent in the second quarter. These deals tended to be smaller, bolt-on acquisitions, as companies attempted to increase efficiencies. Combined, these two segments accounted for almost 60% of the quarter’s overall deal volume.

The firm said that T&L companies are expected to continue to divest business operations and shed non-strategic business. For example, in the third quarter, divestments grew to almost 55% of deal activity, up from 43% in the first half of the year. They expect this trend to continue, at least in the near term, as companies right-size portfolios.

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