DC Velocity - March 2014

MERGER AND ACQUISITION (M&A) activity in the global transportation and logistics industry had a strong finish to what was otherwise a forgettable 2013, according to an annual analysis released in mid-February by the U.S. arm of consultancy PwC.

According to the analysis, there were 66 global deals in the fourth quarter, up 57 percent from third-quarter levels. The total value of those deals reached $23.2 billion, more than doubling the deal value in the prior quarter, according to the firm. The average value of the transactions was $352 million, up from $255 million in the third quarter. The report did not track deals valued at less than $50 million.

In terms of deal volume and value, last quarter was the busiest in the past three years, according to the report. Infrastructure deals involving large assets like ports and airports accounted for most of the transactions valued at $1 billion or more, the report said.

Overall, however, M&A activity took a step backward in 2013. PwC said there were 85 deals in 2013, totaling $65.2 billion. Those levels are near-10-year lows, according to the report. In 2012, there were 210 deals for a total value of $86.5 billion.

U.S., EUROPE WEAKNESS

The continued slowdown of M&A deals in the U.S. and eurozone was a key factor in last year’s weakness, according to the report. The U.S. and eurozone accounted for most of the M&A transactions during the five years before the 2008–09 recession. However, activity in the regions has yet to rebound from the downturn, and in 2013, M&A announcements hit near-10-year lows, according to the report.

Jonathan Kletzel, U.S. transportation and logistics lead-
er for PwC, said the fourth-quarter activity was fueled by
a large number of infrastructure deals that happened to
close during that time. The M&A market doesn’t tend
to be highly seasonal, and year-end tax considerations
did not seem to drive activity last year, Kletzel said in an
e-mail. “There was not a common reason for the tim-
ing” of the fourth-quarter deal announcements, he said.
Kletzel said the momentum should carry into 2014,
especially if global economic expansion and industrial
production growth can be sustained. However, he advised
prospective acquirers to tread cautiously, noting that
valuations remain elevated due to strong competition for
favored assets.
Kletzel said buyers should stick to smaller local deals
because those generally produce easily identifiable syner-
gies. It is no secret that global transportation and logistics
mergers are difficult to integrate due to geographic, oper-
ational, and cultural differences between the parties.

So-called local market deals accounted for 71 percent of the fourth-quarter activity, according to the report. Local deals as a percentage of the overall deal volume hit a 10-year high, with Asia and Oceania the most attractive regions, the report said.

The trucking and logistics markets, which are especially fragmented in the United States, appear ripe for consolidation in 2014, according to the report. Activity in the maritime and airline industries will consist mostly of strategic alliances rather than mergers and acquisitions, the report said .

The geographic focus has generally shifted to markets like China, where there were numerous port and logistics transactions in 2013, the report found. Brazil will also be home to large infrastructure deals in 2014 and beyond as the nation gears up for this year’s World Cup soccer tournament and the 2016 Olympic Summer Games in Rio de Janeiro.