Logistics-transport M&A activity flat in Q1
Major merger and acquisition activity in the transportation and logistics industry was flat in the first quarter, according to PwC's quarterly analysis of the market, Intersections.
There were 37 deals of greater than $50 million in the quarter, compared with 36 in the same period of 2010. While 2011 first quarter deal value declined to $8.2 billion from $17.3 billion from the first quarter of 2010, primarily due to a lack of mega deals, 2011 is off to a similar pace to the robust year of 2010 in number of deals, according to PwC.
'First quarter deal activity was largely driven by smaller deals, as transportation and logistics companies concentrated on consolidating local markets,' said Kenneth Evans, U.S. transportation and logistics leader for PwC. 'Strategic acquirers' have shifted their focus from internal initiatives — bolstering balance sheets and increasing their cash positions — to executing on M&A strategies to help drive their growth.
'With the consistent pace of announced deals in the sector, we are optimistic that the deal volume for the balance of 2011 will be robust by historical standards, even following an extremely strong finish to 2010, which saw 48 deals and $36.4 billion in the fourth quarter alone.'
Shipping and logistics targets led deal activity, contributing four of the five largest deals announced in the first quarter and 70 percent of total deal value. PwC said it expects interest in shipping to continue due to lingering concerns about overcapacity as demand recovers, while improved airline profitability could increase the regulatory hurdle for getting passenger air deals in Western markets approved.
Interest and activity in transportation infrastructure was also a key theme that carried through from the fourth quarter of 2010, as the largest deal of the year so far was in this sector. According to PwC, interest in transportation infrastructure assets will continue as a potential driver for future mega-deal activity due to their predictable returns and the potential to use privatization to address fiscal pressures.
'Dealmakers involved in the mega-deals of 2010 have shifted their M&A strategy to focus on the integration of recently acquired assets, particularly in passenger air,' PwC said. 'The absence of mega-deal activity in the first quarter of 2011 contributed to a decline in average deal size to $200 million from $500 million in the first quarter of 2010 and $800 million in the fourth quarter of 2010. However, this trend is likely to reverse with the continuing improvement in freight and passenger volumes, which should drive valuation trends going forward.'
Evans said healthier capital markets will encourage financial investor participation, likely stimulating larger deals in upcoming quarters.
Looking at activity by region, most deals cemented regional concentration, with 30 'local' deals accounting for over 81 percent of deal volume and 87 percent of deal value, a marked increase from the previous two years. North American domestic deals accounted for six transactions, totaling $1.9 billion, and there were no inbound North American deals in the first quarter of 2011.
Logistics-transport M&A activity flat in Q1