KPMG: Here comes the boom in transportation & logistics dealmaking

KPMG: Here comes the boom in transportation & logistics dealmaking

A total of $73 billion worth of mergers & acquisitions projected for 2016, firm says.

Mergers and acquisition (M&A) activity in the global transportation and logistics industry is expected to soar past the $73 billion mark this year, according to the latest Transport Tracker compiled by consulting firm KPMG; up roughly $67 billion posted for 2015, which will mark the fourth year of increased M&A activity in this sector.

“We expect investment activities in the transport and logistics sector to remain high driven by the search for growth; changes in demographics and supply chains; evolution of business models; and changes to the regulatory environment,” noted James Stamp, head of transport in the U.K. for KPMG, in a statement.

“With interest rates remaining low, returns on asset acquisitions remain attractive, he added. “We expect that further investments this year will see transactions to significantly exceed £52 billion [$73 billion U.S.] on the basis of announced transactions alone.”

Andrew Tipping, a principle with Strategy&, the strategy consulting business unit of PricewaterhouseCoopers (PwC), noted in research brief late last month that such “dynamics” are rooted primarily in the changing needs of commercial transportation and logistics customers. “Shippers’ supply chains are becoming ever more complex, even in market segments where their needs have been relatively straightforward in the past,” he said, pointing to five trends that are helping to fuel more M&A activity in the transportation and logistics industry:

  • The fracturing of supply chains, which increasingly feature a mix of offshore, nearshore, and onshore locations, and the expanding number of “nodes” in shipper distribution networks aimed at reducing delivery time to customers from days to hours.
  • The rising recognition among shippers that transportation and logistics can yield a considerable competitive advantage for them. “Shipping is no longer a tactical decision influenced solely by cost, but rather a strategic consideration based on such factors as customer expectations, sales volume, and product mix,” said Tipping.
  • The expanded presence of high-margin shippers selling valuable and sensitive products, such as specialty pharmaceuticals and fragile electronic equipment, that require exceptional handling, security, reliability, and tracking procedures from their transportation companies.
  • The frequency and magnitude of disruptive events — higher peaks in demand, “100-year” storms and other natural disasters, labor strikes, and geopolitical uncertainties — that are causing shippers to reevaluate their procurement tactics and the efficacy of their logistics networks.
  • The double-digit growth of e-commerce and the in-roads that it is making in the business-to-business arena, where shipment complexity is higher and transparency and tracking requirements are greater.

“[Those] trends are creating new demand patterns for the commercial freight transportation and logistics industry,” Tipping noted. “Shippers want logistics partners that can operate across their diverse supply chains and distribution networks and that are strategically inclined [and] particularly seek carriers that can accommodate spikes in volume and maintain a high level of performance during disruptions.”

KPMG noted such reasoning is why M&A involving asset-heavy and asset-light business models spiked last year, as the firm noted deals involving such companies have more than quadrupled from roughly $10 billion in 2013 to over $44 billion last year – with a further $46 billion worth of deals announced in the planning stages.

“Asset-light logistics operators with advanced IT [information technology] systems have, in recent years, been popular acquisition targets for large logistics providers and freight forwarders,” noted KPMG in its report. “However, we increasingly see that ‘leaner’ logisticians are looking for assets and reliable networks to supplement their services.”

The company pointed to the $1.8 billion acquisition of Coyote Logistics by United Parcel Services and the $3.35 billion takeover of French third party logistics firm Norbert Dentressangle by XPO Logistics as examples of that strategy at work.

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