PricewaterhouseCoopers: Total deal value & activity in global transportation & logistics short of 2007
Industry experiences global slowdown of M&A activity due to deteriorating credit markets
Levels of deal activity and total deal value in the transportation and logistics (T&L) industry 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, a 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.’ 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 also confirmed a slowdown in deal activity located outside of the US’ In previous quarters, due to a weakening US economy, the pace of T&L deal activity that did not include US 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 US 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 US parties.
‘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., US 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% of deals, compared with 40% 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.
According to Intersections, interest in passenger air targets (measured by level of announced deal value) has declined dramatically since 2006 in favor of passenger ground and rail targets.’ Only 12% of deal value was attributed to passenger air targets during the first three quarters of 2008, compared with 29% of deal value in 2007 and 48% of deal value in 2006.’ Meanwhile, one-fourth of the total deal value in the T&L industry was claimed by passenger ground targets while rail targets accounted for an additional 23% of deal value.
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% of the total deal value.’ Meanwhile, the North America region was only involved in 22 deals (18% of total deal targets) in comparison to 55 deals last year, reflecting an overall slo