M&A in Transportation and Logistics Getting Stock Market Support

April 28, 2013
Strategic investors represent 77% of these deals. Companies are increasingly using stock to fund transactions.

First quarter mergers and acquisitions in the transportation and logistics sectors showed investors capitalizing on opportunities to grow and consolidate in local markets. These efforts were supported by buoyant stock markets, according PwCUS.

Despite positive numbers, the first quarter of 2013 didn’t live up to the same period last year. There were 35 transportation and logistics transactions worth $50 million or more in the first three months of 2013, totaling $15 billion. That’s a decrease compared to 38 transactions representing $24.7 billion in the first quarter of 2012. While the majority of transactions with values more than $50 million fall into the middle market category (transactions worth $50 million to $250 million), representing 60 percent in the first quarter of 2013, several large shipping and infrastructure deals provided strength at the top of the market.

“Continued global economic uncertainty contributed to the decline in first quarter M&A volume and value, especially in the U.S. and Eurozone, but we’re still seeing a number of positive catalysts that will likely support M&A activity as the year progresses,” said Jonathan Kletzel, U.S. Transportation and Logistics Leader for PwC. “In addition to local market consolidation primarily in Asian countries, the need for infrastructure M&A in developed nations aimed at closing budget gaps and raising capital for improvements is another driver of potential deals.”

Strategic investors represented 77 percent of transportation and logistics transactions in the first quarter of 2013, as a wide range of companies continue to explore M&A as part of their growth strategies. “The general rise in stock markets is also giving a relative advantage to strategic acquirers, as these companies are increasingly using stock  in order to meet richer seller valuations,” added Kletzel. “This also means that strategic investors are relying less on their ample cash holdings, which should provide additional dry powder for future M&A.”

During the first quarter, close to nine percent of transactions involved stock swaps, almost doubling from four and a half percent for all of 2012.

While financial investor activity declined, financial parties have continued to show interest in the resilient transportation infrastructure market, according to PwC, and these infrastructure transactions accounted for the majority of mega deals (worth $1 billion or more) in 2012 and so far in 2013.

Regionally, targets and acquirers in Asia and Oceania drove the majority of deal value and volume in the first quarter of 2013, representing 19 transactions worth $6.9 billion. China was the most active country with 11 deals totaling $2.5 billion as a result of domestic consolidation in shipping and terminal assets.

In addition to shipping and infrastructure, the airlines sub-sector could also provide significant deal flow this year, despite regulatory barriers affecting the mode. According to PwC, the distressed nature of many constituents will likely contribute to transaction activity, and in addition to bringing in new capital, these types of deals would help improve access to international routes.

“We remain optimistic about transportation and logistics M&A in 2013 and expect the secular trend of infrastructure privatizations along with near-term opportunities within the airline industry could contribute to a modest acceleration in transportation deals,” concluded Kletzel.

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