Logistics in the driving seat for M&A deals

Logistics companies remained a “significant driver” of merger and acquisition (M&A) activity in the 2015 third quarter, and financial advisors PwC expects that trend to continue.
In its latest logistics and transportation analysis, PwC said that as more companies make the decision to outsource logistics services and turn to third-party suppliers, “efficiencies in scale and geographic reach will become critical drivers of inorganic growth”.
These deals were primarily driven by the need to fill a specific “need or gap, gain scale, or expand margins” said PwC in its Intersections report.
A number of logistics players with significant airfreight volumes have been active in the M&A market this year, including Geodis, DSV, Gefco and XPO.
Said PwC: “Despite a decline in deal volume in 3Q15 compared to the previous quarter, average deal value has continued to increase in each of the last four quarters.
“As a result, both total deal value and average deal value for the year-to-date are up over 40% and 50% respectively compared to the prior period.”
Also, growing consumer demand as a result of an improving economy and historically low fuel costs are leading to increased freight volume, “creating an opportunity for logistics companies to consolidate”.
Trucking continued to be an active deal-making segment, as smaller “mom and pop” operators decide to cash out, rather than invest in fleets and attempt to find the increasingly scarce driver talent.
The $3bn acquisition of Conway Trucking by logistics player XPO Logistics “could trigger further deal activity at the larger end of the sector as competition for trucking capacity intensifies”.
In its outlook, PwC remains “optimistic” regarding 2015 as a whole, despite declining deal activity in the third quarter.
It added: “Historically, the fourth quarter has been a popular time for M&A activity as strategic investors prepare for the next year’s operations, and the environment will likely see increased activity.
“At the same time, in order to capitalize on growth opportunities, transportation companies remain focused on expanding in high-growth markets.”
In order to strengthen their business structure and focus on their core business operations, transport and logistics companies are expected to continue to divest business operations and shed non-strategic business.
“In the third quarter, divestments grew to almost 55% of deal activity, up from 43% in the first half of the year. We expect this trend to continue, at least in the near term, as companies right-size portfolios.”