Despite a decline in merger and acquisition (M&A) activity within the global transportation sector during the first quarter this year, experts remain upbeat about the industry’s prospects especially as demand for infrastructure expansion and renewal continues to grow.
“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,” noted Jonathan Kletzel, U.S. Transportation and Logistics Leader for PricewaterhouseCoopers (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,” he added.
PwC’s quarterly survey of global M&A activity in the transportation sector determined that investors capitalized on opportunities to grow and consolidate primarily local markets in Asia and Oceania in the first quarter of 2013, with buoyant stock markets providing additional currency to fund such moves.
Overall, there were 35 transportation and logistics transactions worth $50 million or more, totaling $15 billion in the first three months of 2013, 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) and representing 60% of the deal making in the first quarter, several large shipping and infrastructure deals provided strength at the top of the market, said Kletzel.
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, with China the location for the most activity; home to 11 deals totaling $2.5 billion as a result of domestic consolidation in shipping and terminal assets.
Kletzel told Fleet Owner that, in contrast to Asia, the general uncertainty around the state of the U.S. economy coupled with the fact the U.S. is a more mature market and tends to be more consolidated from a transportation and logistics perspective means there are fewer investment opportunities in North America right now.
“I don’t think limited M&A is a reflection on the entire transportation industry as the correlation between M&A and the transportation demand/economic performance tends to vary by mode,” he added. “There is a particularly strong correlation in trucking but less so in, for example, the airline industry.”
Kletzel explained that airlines are doing relatively well thanks to ongoing capacity management, among other things, with freight rail companies reporting record earnings and growth due to the natural gas boom and manufacturing resurgence.
“Other modes, like trucking and logistics, are not doing as well largely due to the broader uncertainty in the market,” he pointed out. “Trucking in particular tends to be one of the more cyclical modes which is responsive to the economy, so the domestic economic uncertainty that we cited in our report tends to have somewhat more of an impact on this mode as it pertains to both performance and M&A.”
Kletzel stressed, however, that the transportation infrastructure market is seeing a lot more deal making activity, according to PwC’s research, with infrastructure transactions accounting for the majority of mega deals (worth $1 billion or more) in 2012 and so far in 2013.
“State and local economies have a number of financial challenges and are looking for opportunities to partner with companies to improve their infrastructure projects and existing assets,” he noted. “Some private investors have a lot of cash on the sidelines and long-term horizons, and see infrastructure projects as attractive, timely opportunities with future upside.”
As a result, Kletzel said PwC remains “optimistic” about transportation and logistics M&A in 2013, expecting what he dubs the “secular trend” of infrastructure privatizations along with near-term opportunities within the airline industry to contribute to a modest acceleration in transportation deals as the year progresses.