Patrick Bohan, manager, business development, Halifax Port Authority, doesn’t mince words when it comes to explaining consolidation in the transportation sector. Good times or bad, Bohan believes the only certainty about the transportation sector is that it will continue to consolidate.
Bohan was one of several experts sharing their deep insights on various threats to supply chain in a session I hosted for CITT earlier this month at its annual conference held in Winnipeg. He believes that no matter what fancy justifications are used – improving shareholder value, capturing synergies, improving economies of scale, geographic diversification or providing more well-rounded service solutions – industry consolidation is really about companies going after a bigger pile of money.
“It’s all about companies getting bigger and nothing that I’ve seen convinces me that anything will change. When times are tough there is motivation to take out the weaker players. When times are good there is even stronger motivation to take out competitors,” Bohan said. “Success is judged the same across all industries. Bigger is better. Bigger is more successful.”
You can see Patrick’s comments, as well as the comments of the other panelists, in this month’s issue of Canadian Transportation & Logistics. However, as I wrote in this blog a few weeks ago, mergers and acquisitions in transportation and logistics sector are slowing down – even if the motive for them is still strong.
A report released by PricewaterhouseCoopers this week reports that total deal value and activity in the global transportation & logistics industry is expected to fall short of 2007 levels. Levels of deal activity and total deal value announced during the first three quarters of 2008 are not likely to surpass last year’s totals, according to Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis – Third Quarter 2008, the report released by PricewaterhouseCoopers LLP.
Deal activity slowed during the third quarter, with only 37 deals (disclosed value of at least $50 million) announced, bringing the total deals through the third quarter of 2008 to 125, which is not on pace to match the 193 deals announced in 2007.
There were a significant number of large deals (disclosed value of at least $1 billion) announced through the third quarter of 2008, with 14 large deals contributing a total deal value of $66 billion, Pricewaterhouse .Coopers reports. However, with only one of the 14 large deals occurring in the third quarter, total deal value declined, reaching only $11 billion in the third quarter.
“Given the current economic and credit environment, deal activity in the fourth quarter will likely not exceed the levels seen in the third quarter and may even decline. Accordingly, deal value in 2008 is not expected to match the levels of the previous two years. In 2007, there were 16 large deals and a total deal value of $81 billion, and in 2006 there were 20 large deals and a total deal value of $161 billion,” the report states.
The report also confirmed a slowdown in deal activity located outside of the U.S. In previous quarters, due to a weakening U.S. economy, the pace of T&L deal activity that did not include U.S. entities was ahead of overall deal activity.
However, when evaluating the third quarter in isolation (with 37 total deals, of which 25 did not include U.S. entities), it is apparent that the decline of the global banking sector and tightening global credit markets have caused a slowdown in deal activity beyond those transactions that involve U.S. parties, the report states.
“Given current economic observations and trends affecting the T&L industry, it is unlikely that the number and total value of deals will match last year’s levels, as M&A activity is likely to slow down in the fourth quarter,” said Kenneth H. Evans Jr., U.S. transportation and logistics sector leader at PricewaterhouseCoopers. “It is now apparent that the faltering credit markets have caused a slowdown in both domestic and international deal activity.”
Consistent with previous quarters, financial investors scaled back on deals involving T&L targets during the first three quarters of 2008, accounting for involvement in only 34 percent of deals, compared with 40 percent of deals in 2007. The tightening economy and decreased availability of liquidity contributed to the continuing trend of well-capitalized strategic investors prevailing in M&A activity in this sector.
In terms of regional distribution, entities in Asia and Oceania (Australia, New Zealand Melanesia, Micronesia and Polynesia) continue to lead all regions in terms of deal targets, accounting for 32%of the 125 deals announced during the first three quarters of 2008. The UK and Eurozone accounted for a fewer number of deals, but claimed 34 percent of the total deal value. Meanwhile, the North America region was only involved in 22 deals (18 percent of total deal targets) in comparison to 55 deals last year, reflecting an overall slowdown in cross-border acquisitions of U.S. entities during the ongoing financial crisis. For every region, barring North America, deal activity announced during the first three quarters of 2008 is on pace to exceed the number of deals announced during 2006.
The BRIC (Brazil, Russia, India, and China) economies continue to attract investors, accounting for 29 deals thus far in 2008, exceeding the number of deals announced in 2006 (25) and on pace to exceed last year’s deals (36) involving targets in these regions. China remains the most active region, in terms of BRIC targets, accounting for 12 deals in the first three quarters, while Brazil and Russia continue to gain foreign investments, acting as target entities for 7 deals and 6 deals respectively.
“Overall, the transportation & logistics industry continues to attract M&A investment amidst increasing turbulence in the global financial markets,” said Klaus-Dieter Ruske, global transportation and logistics sector leader, PricewaterhouseCoopers. “However, cross-border acquisitions for U.S. targets will continue to be weak, given the decreased liquidity of the credit markets and a recent strengthening of the U.S. dollar. We believe this trend will reverse, but it may take a longer period of time than originally expected.”
For more information and to access the full report, visit: www.pwc.com/transport.