PwC US: Logistics M&A train keeps rolling in Q4 2015

Although activity slowed slightly in the fourth quarter, total deal value for mergers and acquisitions in the transportation and logistics sector spiked 206 percent from the same 2014 period, according to a new report from PwC US.    Merger and acquisition activity in the transportation and logistics industry continued its strong run in the fourth quarter of 2015, capping off a year that saw total deal value in the industry nearly double was it was in 2014.
   Although the M&A activity was down 25 percent year-over-year by volume in Q4 2015, total deal value soared 206 percent compared with Q4 2014, according to a quarterly analysis of global deal activity in the sector by PwC US, a subsidiary of multinational professional services and consulting firm PricewaterhouseCoopers. At $73.2 billion, fourth quarter deals accounted for 42 percent of the total deal value for 2015.
   In its latest Intersections report, PwC US attributed the spike in deal value primarily to the high number of “megadeals” – those with a value over $1 billion – during the quarter. Data from the report indicates there were nine such deals announced in the fourth quarter with a total value of more than $61 billion.
   For the full year in 2015, the transportation and logistics sector saw $172.7 billion in announced M&A deals, up substantially from the $87 billion recorded for all of 2014. 
   PwC US noted that megadeal activity was a major driver of deal value throughout the year with 28 transactions worth a total of $124.9 billion, up a whopping 236 percent from 17 transactions worth $37.2 billion the previous year.
   Large-scale acquisitions during 2015 included FedEx Corp.’s $4.8 billion purchase of Netherlands-based express carrier TNT Express, an acquisition that is expected to make FedEx the largest package delivery provider in Europe; U.S.-based XPO Logistics Inc.’s $3.5 billion bid for a 67 percent interest in Groupe Norbert Dentressangle, an iconic French trucking provider, and its $3 billion purchase of LTL carrier and freight broker Con-way Inc.; and Japan Post’s February offer of A$6.5 billion (U.S. $5.1 billion) to acquire Toll Holdings, Australia’s largest freight transportation company. One megadeal that has yet to be consummated is Calgary-based railway Canadian Pacific’s $30 billion stock-and-cash offer to purchase number four U.S. railroad Norfolk Southern, though it isn’t for lack of trying on the part of CP, which continues to pursue the acquisition despite opposition from the NS board, other Class I railroads, rail unions, members of Congress, and even NS customers.
   In the ocean shipping industry, number three container carrier CMA CGM in December made a $2.8 billion all-cash offer to acquire APL parent Neptune Orient Lines from Singapore-owned Temasek Holdings; and shortly thereafter, state-owned conglomerates COSCO and China Shipping announced plans to merge at the behest of the Chinese government.
   “2015 was the year of headline grabbing megadeals and the transportation and logistics industry was no exception as megadeal value increased more than two-fold compared to last year,” said Jonathan Kletzel, U.S. transportation and logistics leader for PwC, said of the report. “The United States was an especially attractive target for large-scale M&A with eight megadeals, totaling 41 percent of the overall megadeal value. This increase within the U.S. can be attributed to domestic companies struggling to grow organically and the unprecedentedly low finance rates. As strategic investors in fragmented industries such as trucking and shipping continue to follow an inorganic path of attaining growth and scale, we expect consolidation to continue, leading to elevated deal values in the year ahead.”
   The report noted that cross-border deals also saw a huge spike in 2015, increasing 31 percent by deal volume and more than three times in total value to $114.9 billion. Cross-border transactions accounted for 51 percent of the total deal value in the industry for 2015, which PwC US called a “major reversal” from prior years.
   “As large international players within the sector continue to expand their international operations and service offerings in efforts to develop global transportation networks, PwC expects continued interest in cross-border transactions,” the consulting firm said.
    PwC US said in the report it expects mergers and acquisitions in the transportation and logistics industry to remain strong, but warned economic headwinds could slow activity.
   “Looking ahead at 2016, we remain optimistic that M&A will continue as both the domestic and several foreign economies are poised for growth. However, commodity pricing pressures will likely continue to have mixed effects on the various industries within the sector,” said Kletzel.
   “Lower oil prices are reducing airline and trucking companies’ operating costs causing some companies to return capital to stakeholders versus funding further fleet expansion via M&A. Volatility in the commodity market continues to negatively impact the railroad industry, causing a shift in focus towards intermodal growth in efforts to offset headwinds. As more companies look to control a greater percentage of the value chain, this should lead to intermodal M&A growth across modes.”
   PwC US’s Intersections transportation and logistics M&A analysis is compiled using transaction data from Thomson Reuters.