Logistics M&A set to continue say PwC
07 / 08 / 2015
Strong 2015 second quarter merger and acquisition (M&A) activity within the transport and logistics industry looks set to continue, says the latest survey by business consultants PwC.
The latest quarterly Intersections analysis by PwC found that transport and logistics sector deal activity saw improvements in both volume and value, driven by “substantial megadeal growth” which grew by more than 36% compared to the first quarter, while the average deal value also increased, to $564m.
There were nine megadeals – valued at $1bn or more – totalling $23.6bn or almost 69% of M&A value for the quarter.
Said PwC: “Megadeals were primarily driven by the need to fill a specific need or gap, gain scale, and drive profitability. In April, FedEx agreed to launch a tender offer to acquire the entire share capital of Netherlands-based TNT Express. This all-cash acquisition, valued at almost $4.8bn, is expected to improve FedEx’s European capabilities and accelerate global growth.
“At the completion of the transaction, FedEx will become the largest package delivery provider in Europe.”
Cross-border expansion and service line expansion were key drivers for many of the second quarter deals, particularly in advanced economies.
PwC said that the increase in cross-border deals was primarily driven by strategic investors, who often seek inorganic opportunities to improve geographic reach and long-term growth, citing the FedEx-TNT acquisition.
At the same time, cross-border activity is less significant in emerging economies given that these companies tend to be smaller and look to acquisitions of local competitors to improve scale and market share.
Added PwC: “Growth also remains a key driver of cross-border activity, as transport and logistics companies look to increase geographic reach, add capacity, and enter new markets. For example, in the airline industry, there have been a number of announcements as airlines look to buy stakes in rival carriers.”
Activity by financial investors increased to 44.3% in the second quarter 2015, compared to 38.9% in the first quarter, as strategic investors divested non-core and underperforming assets, while the funds raised by these sellers should strengthen their financial position.
In their outlook, report authors Jonathan Kletzel Julian Smith remain optimistic regarding 2015 as deal activity continues to increase.
“As a key driver, the US economy remains strong and the US dollar continues to advance against the euro, the yen, the pound, and many other currencies. This makes cross-border acquisitions by US companies cheaper, on a relative basis. Concurrently, emerging economies see continued GDP growth driven by a growing middle class and rapidly urbanising populations.
“Companies in these markets see the need for increased efficiencies and scope, which can be achieved through inorganic means. Finally, fuel prices remain low. “
They added: “Jet fuel prices have also declined more than 40 percent since July 2014, based on PwC’s analysis. These lower fuel costs make acquisitions more attractive because of lower expenses, which make available additional funds for activities such as M&A.”