Mergers and acquisitions in the transport and logistics industry didn't quite live up to the industry's expectations in 2018. But the dramatic drop in deals could be reignited by Brexit, based on a global analysis conducted by PwC.
In 2018, deals in the transport and logistics industry dropped by 23%: only 92 mergers and acquisitions were announced in the second half of 2018.
M&A activity in 2018: strong first half-year, weak second half
The first half of 2018 reached a near record in the T&L industry with the announcement of 127 deals in the first half of the year. The second half, however, witnessed a significant drop. With only 92 deals announced, it is the lowest number in five years.
This has made 2018 a mixed year for mergers and acquisitions in the transport and logistics industry. Nevertheless, with Brexit on the horizon, and investments from China, M&A activities in Europe could see a refreshment in 2019.
M&A activities slowed down in 2018
2017 set a record with 283 deals, worth $134.2 billion. The first half of 2018 seemed promising with the total value of deals at $74.3 billion, but the much lower activity in the second half, $41.0 billion, caused a significant downturn in total deal value in 2018.
Despite several individual factors having contributed to this drop, the average transaction value remains relatively high at $115.3 billion.
T&L affected more strongly than other industries
In 2018, only 3.5% of all global acquisitions came from the transport and logistics industry. Compared to other industries, the T&L sector saw the poorest figures in 2018. The numbers had reached their lowest in eight years.
Overall cross-industry mergers and acquisitions dropped by 2.4% in total, but the reason the T&L industry stood out this year is the 23% drop in deals aimed at the industry. In comparison to other industries, business in industrial production fell by 7.1%, while deals in the trade and consumer goods industry rose by +0.6%.
Brexit - future deal driver?
Deals in Europe dropped by 42% in total. However, deals involving UK companies made up 33% of the European deal count in 2018, making the United Kingdom the country with the strongest M&A activity in Europe.
Brexit has the potential to cause shifts of supply chains and relocation of sites, which may lead to M&A activity in transport and logistics. Expectations on guaranteeing smooth supply chain processes and end-to-end delivery capability are putting pressure on transport and logistics companies from the UK and Continental Europe to guarantee those sustainable supply chains.
37% of all deals with Chinese involvement
China has been the most active country in 2018 in terms of transport and logistics deals in global comparison: 81 out of 219 deals in 2018 were with Chinese involvement. In addition, six out of the 21 so-called mega deals also involved Chinese companies.
These deals are driven by the strong need to invest in the logistics market, seeking to increase capacities and reduce costs to handle the pressure coming from the rising e-commerce and growth in cross-border online trade.
Although activities in China have been mostly local, as a result of consolidation and internal restructuring measures, some players demonstrate ambitions and strategies to grow internationally.
Little momentum in Switzerland
Despite high expectations for 2018, very small M&A transactions took place in the Swiss market. For example, Hupac announced that it was to take over the share capital of ERS Railways to strengthen its position in the maritime hinterland traffic sector. A frequently quoted candidate for minority shareholdings is SBB Cargo. Its shareholder base is to be opened up, and companies from the areas of logistics, retail and industry have all expressed an interest.
On 16 January 2019, another transaction plan was announced (not included in the PwC study): The Danish company DSV has set its sights on Panalpina. The deal is expected be concluded for around 4 billion CHF. DSV’s takeover bid for CEVA Logistics for around 1.5 billion CHF was declined. CEVA Logistics will, however, remain a takeover candidate.
Outlook for 2019
- Our outlook for future deal activity is relatively optimistic. After the weak second half of 2018, M&A activity in the transport and logistics industry is expected to pick up in 2019.
- The industry is in a state of cutthroat competition, and industry consolidation could be the solution to detriment the margin, and to impair competitors’ ability to make bold investments to streamline and digitise their businesses.
- We believe that Brexit could help pick up the lower deal activity in Europe in 2019. Based on deal activities in and with UK companies in 2018, international investors still seem to find investable targets in the UK.
- With China’s intense participation in acquisitions within Asia, we expect an increasing number of private Chinese enterprises to acquire overseas companies that could be faster, and more agile than state-owned Chinese enterprises.
- The course of the negotiations for the framework agreement with the EU has a significant impact on Switzerland’s economic growth, including the logistics sector. That is why we expect an increase in M&A transactions in Switzerland in 2019. Domestic companies such as Panalpina, SBB Cargo and CEVA Logistics remain a focus for M&A developments.
