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Transportation, logistics M&A data mixed as uncertainty mounts

Report shows deal value up, transaction count down through 1st half of ’22

(Photo: Jim Allen/FreightWaves)

Deal activity in the transportation and logistics sector dipped from record levels established in 2021 but the total value of transactions continues to tick higher, according to a midyear report from consulting firm PwC.

Transaction value in the space stood at $246 billion for the 12-month period ended May 15. That’s a 6% increase from full-year 2021. However, the number of deals was down 7% over the same period. The data shows only modest moderation “despite global economic and political uncertainty” as well as a rising interest rate environment.

Total deal value was up in transportation subsectors like trucking, passenger air and shipping. Logistics deal value in the period was off of 2021 highs but still more than twice that of 2019 as the subsector “continued to be the engine of M&A activity.” Logistics deals accounted for 36% of the industry’s total volume over the last 12 months.

“The recent supply chain bottlenecks have forcefully reminded companies of their dependency on their partners,” the report read. “Consumers have made logistics a key differentiator in their shopping experiences as they keep estimated delivery dates in mind. In turn, more companies are committing capital and resources to ensure a flexible, sustainable and cost-efficient supply and delivery chain.”

Cross-border transactions were down 9% with deal value off 40%. However, this was offset by higher activity in local markets. Logistics deals occurring domestically or “within borders” accounted for 76% of total deal value in the period compared to 57% in 2021.

“The high level of M&A activity in the T&L sector is expected to continue in FY 2022 as companies address a number of challenges,” the report stated. “Due to uncertainties related to new COVID-19 variants, the war in Ukraine, material and equipment shortages and overall supply chain disruptions, many companies are considering near-shoring opportunities and attempting to gain more control over their supply chain.”

Companies are using record profits and cash flows generated recently to solve supply chain challenges via M&A. Many companies have been left with out-of-season merchandise and are still chasing some items due to manufacturing and shipping delays. In response, strategic investors are now bringing warehouse and fulfillment solutions in house.

“As a result of product shortages, companies also must consider the concept of just-in-time (JIT) inventory compared to just-in-case (JIC) inventory. All of this disruption is fueling logistics M&A activity, as strategic investors attempt to secure their supply chains while financial investors look to maximize their returns through attractive investments.”

Deal value in the shipping industry was up 11% over the last 12 months when compared to 2021, with little slowing likely.

“Supply chain issues still challenge the [shipping] subsector due to pandemic-driven lockdowns in China, along with continued equipment and labor shortages in U.S. West Coast ports. As foreign production ramps up given the loosening of COVID-19 restrictions, we expect to see an increase in deal activity in this sector as investors seek to drive value by solving inefficiencies and bottlenecks.”

The report called for an increase in the number of deals tied to technology and visibility providers as a means for the shipping industry to reduce operating costs.

The trucking industry continues to see heavy deal flow, the report said. Strategic investors are still looking to consolidate the space and many are acquiring labor (drivers) and equipment, which were hard to find during the height of the boom cycle.

Deal values in passenger air (up 8%) and ground (up 143%) transportation occurred as transaction volumes remained steady. Some airlines are expected to accomplish growth through M&A. The big jump in ground deal value during the period was due to a $52 billion bid for Atlantia, which manages roads and airports in Europe.

The report called for activity in both passenger ground and air transportation to recover in 2022 as COVID restrictions have notably eased and consumers have meaningfully expanded their travel plans this summer.

Conversely, e-commerce activity has slowed as “companies are evaluating ways to make their supply chain capacity able to scale up or down as needed.”

“We expect that technology-backed solutions will continue to play a large role in T&L deals, with investors seeking technology-driven solutions to improve efficiencies and manage costs, especially in today’s inflationary economic environment,” the report concluded.

“Attractive investment opportunities include real-time solutions to help truckers identify optimal routes to reduce fuel costs and tools that help freight forwarders manage fleets with less personnel, as well as automated solutions that enable warehouses to run 24/7.”

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.