Lack of large deal activity leads to sharp decline in overall deal value

Deal activity dropped significantly during first quarter 2009 in the global transportation and logistics (T&L) industry, according to a report released today by PricewaterhouseCoopers LLP: Intersections: First-quarter 2009 mergers and acquisitions analysis. During the first quarter, 18 deals were announced at a disclosed value of at least $50 million each, marking a serious slowdown from fourth quarter 2008, when 43 such deals were announced.’

Activity continued to increase among non-US parties during first quarter 2009. Foreign entities made up 94% of deal volume for T&L targets in the quarter, up from 71% in 2007 and 81% in 2008. Only one US entity announced a deal during first quarter 2009.

Average deal values declined significantly, from $513 million in 2008 to $159 million in the first quarter (for deals announced with a value of at least $50 million) because of the general absence of large deals. In place of large deals worth at least $1 billion were minority stake purchases, accounting for 39% of deals announced during first quarter 2009, up from 30% of the total deals announced in 2008.

‘The continued slowdown of M&A activity for the transportation and logistics sector during the first quarter of 2009 presented interesting changes in behavior among deal participants,’ said Kenneth H. Evans Jr., US transportation and logistics sector leader, PricewaterhouseCoopers. ‘Most notable is the shift toward minority stake purchases, which can be attributed to tight credit and strategic buyers’ aversion to risk. We expect these factors will lead to minority stake purchases continuing to make up a large percentage of deals announced during the rest of the year.’

Intersections reports that passenger air and logistics sectors saw the most deal activity in value during first quarter 2009, a change from past years when shipping took the lead. Passenger air accounted for 34% of M&A activity, compared with 17% in 2008 and 27% in 2007. Deal activity for logistics targets also increased over previous years, accounting for 32% of activity during first quarter 2009 compared with 13% in 2008 and 14% in 2007.

Strategic investors continued to account for the majority of deals for the T&L industry, as previously predicted by earlier editions of Intersections. Strategic investors accounted for more than 80% (15 deals) for first quarter 2009, up from approximately 60% of deals announced in 2007 and 2008. There was an overall absence of deals in the shipping sector by financial investors during the first quarter. In previous quarters, financial investors have shown more interest in shipping than other transportation modes.

The pace of deal activity, as measured by the number of deals announced for transportation and logistics targets, has declined significantly, with just 18 deals in first quarter 2009. Large deals (with a disclosed value of $1 billion or more) were nonexistent for the T&L sector during the first quarter. This marks a huge drop from the 22 large deals announced in 2008 and 17 in 2007. A focus on capital preservation by potential buyers contributed to the absence of large deal activity. The difficult financing environment witnessed in 2009 has caused the most well-capitalized strategic buyers to engage in smaller deals, including minority stakes, divested assets, and distressed targets. It is likely that this trend will continue, with a general lack of large deals being made in the T&L sector throughout 2009 and possibly beyond.

Regionally, T&L deals shifted tremendously during first quarter 2009, with acquirer and target parties focused heavily in the United Kingdom-Eurozone and Asia-Oceania regions. Deals in these regions were up to nearly 80%, in comparison with 55% in 2007. A decline in activity in South America was due to a reduction in deals for Brazilian targets, which had been a primary contributor to regional deals in past quarters. BRIC (Brazil, Russia, India, and China) targets’ deal activit