NEW YORK, Nov. 3, 2011 /PRNewswire/ -- The pace of deal activity in the transportation and logistics industry (T&L) slowed slightly in the third quarter of 2011, primarily driven by less activity in emerging markets, according to Intersections, a quarterly analysis of global merger and acquisition (M&A) activity in the transportation and logistics industry by PwC US. During the quarter, strategic dealmakers made up a vast majority of M&A volume, while financial investors were active in mega deals.
For transportation and logistics deals worth $50 million or more, there were 39 announced transactions totaling $11.3 billion in the third quarter, a decrease when compared to the 46 deals worth $13.4 billion in the second quarter of 2011. Despite the decrease, average deal value was at $290 million in the third quarter 2011, which was up from $272 million in the first three quarters of 2011.
"T&L deal activity was resilient in the third quarter of 2011 despite concerns over macroeconomic trends that included fears over European debt, the potential for a double dip recession in the U.S., and fewer deals in the emerging markets," said Kenneth Evans, U.S. transportation and logistics leader for PwC. "This quarter, average deal values were similar with the first half of the year which can be attributed to the four mega deals that were announced. With significant macroeconomic issues still persisting as we move into the fourth quarter, it's unlikely we will see activity pick up in a sustained manner until some of the uncertainties are taken out of the market."
Strategic acquirers drove the majority of deal activity with 68 percent of deals worth $50 million or more in the third quarter of 2011, compared to 60 percent of deal activity for the full year 2010. "With the recent volatility in capital markets and the continued stockpiling of cash by large sector constituents, it seems that strategic investors are relatively well positioned to engage in new deals and drive any further recovery in M&A totals," added Evans.
In the third quarter of 2011, financial investors were more active in mega deals, or transactions worth $1 billion and more, with three of the four mega deals executed by financials investors for a total of $3.6 billion.
"Financial investors, who typically look at deals in the T&L sector for value and stable cash flows, will continue to focus on distressed targets and larger shipping and transportation infrastructure deals," continued Evans. "It's a positive sign to see that acquirers are still pulling the trigger to execute large deals in the face of today's market challenges."
A decrease in emerging markets activity, including inbound BRIC and non-BRIC transactions have been the primary drivers of the M&A slowdown in the third quarter of 2011, according to PwC. Both acquirers and targets in emerging markets each accounted for only approximately 31 percent of volume for deals over $50 million, compared to 41 percent and 43 percent respectively, for the full year 2010.
"Deal activity in the U.S. and Europe has weathered the economic uncertainty well compared to the emerging markets," added Klaus-Dieter Ruske, global transportation and logistics leader for PwC. "What we're seeing is a more conservative investment stance on the part of foreign strategic acquirers. Acquirers are taking their time, looking at opportunities in emerging markets, and taking a more intense approach to their due diligence, especially considering the high valuations and uneasiness regarding concerns over slowing growth in these regions."
Transportation and logistics deal valuations continued to trend higher in the third quarter of 2011, and remains above the level of announcements during 2010 and the first half of 2011, according to PwC.
"It is unlikely that multiples will expand further since deal valuations are near a historical high, and macroeconomic risks appear oriented to the downside," added PwC's Ruske. "Interestingly, there was virtually no difference in median value-to-EBITDA ratios between emerging markets and advanced economies during 2011. This appears to indicate that overall, investors have judged the balance of risk and return opportunities of targets in these markets to be approximately equal so far this year."
Deal activity shifted toward shipping and logistic modes and away from passenger targets in 2011. In the third quarter of 2011, three of the four mega deals were shipping and logistic transactions with a total value of $3.8 billion. PwC expects to see deal activity in the passenger air and ground sectors due to the anticipation of airport privatizations and road concessions which will be triggered by investor's renewed interest in infrastructures deals.
Global domestic deals continue to dominate the T&L deal market as companies look to build out existing networks for growth and potential synergies for a greater return on investments. The Asia and Oceania regions led global domestic deal activity with 15 transactions valued at half a billion in the third quarter of 2011 followed by Europe with nine deals valued at $2.2 billion. "Companies have the capital on hand to execute larger M&A transactions but if the current macroeconomic trends continue to persist, we anticipate smaller strategic deal activity through the end of 2011," added Ruske.
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.
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