There’s been a lot of transportation dealmaking in the works of late. Indeed, the total value of transportation mergers and acquisitions (M&A) hit $37.6 billion in the first quarter of this year – the highest level within the last three years, according to data traced by global consulting firm PricewaterhouseCoopers (PwC US), except for the fourth quarter of 2015, which included the now-scuttled attempt by Canadian Pacific Railway to buy Norfolk Southern in a deal valued at over $27.5 billion.
[Good thing we’re not living in a “Mad Max: Beyond Thunderdome” world, where if you bust a deal, you face the wheel …]
Jonathan Kletzel, PwC’s U.S. transportation & logistics leader, noted in his quarterly analysis that though both volume and value of M&A activity declined sequentially in the first quarter, it’s up 26% on a year-over-year basis – and that $62 billion figure for the fourth quarter needs revising as it contains the aforementioned now-not-happening $27.6 billion railroad merger.
Now, much of this transportation dealmaking in the first quarter concentrated in the Asia Pacific region – specifically China and Australia – with marine services and passenger ground transportation the main sectors for M&A efforts, jointly accounting for more than 52% of the quarter’s overall deal volume, PwC said.
“Asia and Oceania continued to be the largest acquirer region with 54% of all deals announced,” Kletzel noted in his briefing. “This activity was driven in part by China where nine of the 26 deals in the region were based. Of these nine, seven deals were local-market.”
He added that this “large proportion” is based upon a number of factors, including China’s continued efforts to improve infrastructure and transportation services in an effort to compete more effectively on a global scale.
“At the same time, China and other developing economies are seeing an e-commerce boom which is driving the need for increased geographic T&L capabilities,” Kletzel said.
Why should the U.S. transportation sector care about any of this? I talked to Andy Schmahl, a principal within the Strategy& division within PwC, and he noted that one reason deal volume continues to be high – indeed, hitting a three year high, according to PwC’s numbers – is that fuel prices remain on the low side. That’s giving T&L companies a “window” in his words to grow or fold up their tents in a relatively profitable fashion.
“Low fuel prices are creating a ‘renaissance’ if you will in terms of creating profits that can fund growth,” Schmahl (at right) explained. “Acquisitions are the most straightforward avenue for growth.”
Yet he stressed that we’re now quickly passing through the ‘first and second wave” of acquisitions within the T&L space, meaning that deals from here on out will be “intellectually harder” to craft.
“We’re running out of the ‘good’ acquisitions to be made at a fair price,” Schmahl said. “Now [transportation] companies will need to take more stock of what their customers truly need.”
That means there will be an increasing need to think “holistically” about such deals as to whether they offer not just capacity in specific lanes but the right kinds of services, plus information gathering and delivery capability.
“Those are the harder questions,” Schmahl emphasized.
Indeed; especially when it comes to the freight transportation business.