Trucks at Work

A pause for transportation deal-making

With the freight markets suddenly softening and global economic indicators all over the map, it’s probably no surprise that major merger and acquisition (M&A) activity in the transportation and logistics sector took a breather in the third quarter this year, according to Intersections, a quarterly analysis of global deal activity compiled by PricewaterhouseCoopers (PwC).

That being said, though, Jonathan Kletzel (seen at right) – PwC’s U.S. transportation and logistics leader – stressed that year-to-date deal-making volume remains in line with recent years, with total deal value over the first nine months of the year was at the highest level since 2006.

(That includes, of course, the big $3 billion acquisition of Con-way Inc. and its various operations by XPO Logistics – a deal that encompasses Con-way Freight, Con-way Truckload, Menlo Logistics and Con-way Multimodal and that wrapped up this week.)

Heading into the final quarter of 2015, PwC’s Kletzel remains optimistic that M&A activity within the transportation and logistics space will return to a “healthy level” in his view.

“Following a strong start to the first half of the year, transportation and logistics deal activity tapered off slightly during the third quarter though we are expected to still be on track to have a successful year for deal activity in the sector,” Kletzel noted.

“Historically, however, the fourth quarter has been a popular time for M&A activity as strategic investors prepare for the next year’s operations, and we believe the M&A environment will likely see increased activity,” he stressed. “At the same time, in order to capitalize on growth, transportation executives remain focused on strengthening their core business operations and expanding in high growth markets.”

Here are a few deal-making factoids PwC gathered up in its most recent report on the subject:

  • There were 44 announced transactions (worth $50 million or more) in the third quarter for a total value of $28.8 billion; a 30% drop in volume and 27% drop in value compared to the second quarter this year.
  • That also represented a 28% decline in volume from the third quarter of 2014 but a 36% spike in value as average deal size has continued to increase in each of the last four quarters.
  • Year-to-date, the level of M&A activity remains consistent with 2014 while value increased significantly – surging from $63.1 billion in the first nine months of 2014 to $97.9 billion in 2015, which is a 55% increase.
  • Six "mega-deals" (transactions worth more than $1 billion) totaling $18.3 billion occurred in the third quarter, representing more than 63% of total deal value.
  • The rationale behind those large-scale transactions includes companies attempting to increase scale, enhance operations, build transportation networks and expand geographic reach, PwC said.
  • Similar to prior quarters, cross-border expansion remains “a key driver” for many of the deals in the third quarter, according to Kletzel; particularly in advanced economies in which more than half (55%) of the deals involved trans-national activity.
  • Of note during the third quarter, marine shipping and related services deals recorded a significant increase, driving more than a third of the quarter’s volume (34% compared to 13% in the second quarter). Those deals tended to be smaller, bolt-on acquisitions, as companies attempted to increase efficiencies, PwC said.
  • Trucking deals also continued to see interest as smaller “mom and pop” operators decided to cash out, rather than invest in fleets and attempt to find the increasingly scarce driver talent.
  • Logistics companies remained a significant driver of M&A activity in the third quarter (23%), and that trend is expected to continue for the foreseeable future.

“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,” Kletzel added.

“These deals were primarily driven by the need to fill a specific need or gap, gain scale, or expand margins,” he said. “Also, growing consumer demand as a result of an improving economy and historically low fuel costs are leading to increased freight volume, creating a potential opportunity for logistics companies to consolidate.”

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