Global Transportation & Logistics M&A Activity Jumps in Second Quarter, According to PwC

NEW YORK, Aug. 4, 2011 /PRNewswire/ -- Deal activity in the transportation and logistics industry (T&L) jumped nearly 15 percent in the second quarter of 2011 compared to the same period of 2010, according to Intersections, a quarterly analysis of global merger and acquisition (M&A) activity in the transportation and logistics industry by PwC US. Despite increased concerns over a potential economic slowdown, the majority of factors influencing deal activity -- including the attractiveness of investment in many parts of the sector and the availability of financing -- are positive and warrant a gradual recovery in deal levels, according to PwC.

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For deals worth $50 million or more, there were 47 announced transportation and logistics deals worth $13.5 billion in the second quarter of 2011, with six more deals than in the same period of 2010. While deal value decreased from $18.4 billion in the second quarter of 2010, value was up approximately 30 percent from $10.4 billion from the first quarter of 2011. For the first six months of 2011, there were a total of 92 announced deals worth $50 million or more, putting deal activity in T&L on track to meet 2010 levels, according to PwC.

"Deal activity should continue its recovery in-line with global economic growth," said Kenneth Evans, U.S. transportation and logistics leader for PwC. "The longer a moderate recovery continues, the more likely it is that strategic acquirers will feel pressure from investors to use their relatively ample liquidity positions to find ways to supplement organic growth. This trend should provide for incremental gains in total transportation and logistics deal volume and value announced during the second half of 2011, with an environment more conducive to larger deals contributing to gains in average deal value."

While shipping and passenger air deals drove the majority of deal value in the second quarter, accounting for 65 percent of deals worth $50 million or more, continued interest and activity in transportation infrastructure remains a key driver for M&A in the sector. For the second consecutive quarter, the largest deal was in the infrastructure sector, in addition to two of the three mega deals announced in the second quarter of 2011. According to PwC, infrastructure deals should continue at a robust pace in developed markets because of budget issues. Large countries are grappling with the need to make transportation infrastructure improvements while also pursuing fiscal austerity. This could potentially drive additional mega deal activity globally in the second half of 2011.

The second quarter of 2011 also saw deal multiples remain at nearly a 10-year high. Transportation and logistics deal valuations have increased during 2011 as compared with the previous year and remain above long-term norms. "The increase in controlling interest stakes and coinciding decline in minority stakes are helping to fuel higher valuations, because acquirers typically pay premiums to gain majority ownership," added Evans. "Acquirers are demonstrating greater interest in and ability to engage in new deals during 2011, which should support relatively high multiples for targets in the sector."

Strategic acquirers accounted for 30 percent of total deal volume and 23 percent of total deal value, and were behind two of the three mega deals in the second quarter of 2011. "Transportation and logistics companies are increasing their financial leverage and liquidity as noted in PwC's recent survey Transportation & Logistics 2030 Vol.3," added Klaus-Dieter Ruske, global transportation and logistics leader for PwC. "In this type of environment, strategic investors with liquidity could have an advantage in competing for desirable targets against financial investors that may need to rely more heavily on credit."

Regional distribution of transportation and logistics deal activity during the second quarter of 2011 indicates acquirers' focus on consolidating regional (e.g. Asia and Oceania) and local markets as nearly 75 percent of deal activity took place domestically. Asia and Oceania lead domestic deal activity with 17 transactions valued at $5.8 billion in the second quarter. According to PwC, the relative fragmentation of the transportation and logistics sector in emerging markets is due to companies' focus on building domestic scale before entering the global marketplace.

"The strength of domestic deals is somewhat surprising given that during a recovery, companies might be expected to be more willing to take on the challenges of cross-border transactions," added Evans. "However, considering the importance of Asia and Oceania entities to the overall M&A market and the prevalence of  higher-growth emerging markets in this region, it seems most plausible that these companies are finding better return opportunities on deals in their local markets than they are in foreign countries."

Recognizing that there are several risk factors that have the potential to derail deal activity in transportation and logistics, including further weakness in the U.S. housing market, overhang from European sovereign debt problems, and the risk of overheating in several BRIC countries, one of the most significant concerns in the industry continues to be corruption, an issue particularly heightened during a robust period of M&A activity, according to PwC.

Evans explained, "With more regulatory and government bodies taking a closer look at corruption, organizations face intensified risks in regions where corruption is pervasive and corrupt practices are longstanding—at times, even accepted as status quo. The threat of corruption and bribery can be particularly great for transportation and logistics companies conducting business in certain countries, potentially diminishing deal value. Dealmakers in the sector need to be on heightened alert for corruption related issues and ensure their diligence and strategies include significant programs in place to mitigate these threats."

According to PwC, factors that transportation and logistics companies need to consider include vetting third parties, determining the appropriate level of due diligence, and building strong compliance efforts on Foreign Corrupt Practices Act (FCPA) regulations.

In the latest Intersections, PwC includes a special report entitled, "Corruption Due Diligence: Will your company's strategy mitigate merger-related risks and costs?" to provide insights into best practices to mitigate corruption risks, including how transportation and logistics companies achieve success in anticorruption efforts.

For information on Intersections and to access the full Q2 2011 report, visit: http://www.pwc.com/us/industrialproducts

About PwC's Global Transportation & Logistics Practice

PwC's Transportation and Logistics practice is composed of a global network of industry professionals who provide assurance, tax, and advisory services to public and private transportation and logistics companies around the world. We bring experience, international industry leading practices, and a wealth of specialized resources to help solve business issues.

About PwC's Industrial Products practice

PwC's Industrial Products (IP) practice provides financial, operational, and strategic services to global organizations across the aerospace & defense (A&D), business services, chemicals, engineering & construction (E&C), forest, paper, & packaging (FPP), industrial manufacturing, metals, and transportation & logistics (T&L) industries. With more than 31,000 professionals located in over 150 countries, PwC's IP global professionals deliver a wide range of industry-focused tax, assurance, and advisory services to address critical business issues. For more information please visit: www.pwc.com/us/en/industrial-products

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

SOURCE PwC