Q3 transportation and logistics M&A activity is up slightly, reports PwC

Pricewaterhouse Coopers (PwC) reported that third quarter merger and acquisition (M&A) activity in the transportation and logistics sectors saw a slight bump.

Deals cited by PwC represent all announced deals for the quarter-as opposed to completed deals only-and the report does not parse out deals that are withdrawn, intended, or pending.

Third quarter deal value—for deals valued at $50 million or more—was $10.2 billion and represents 40 announced deals compared to the second quarter, which had 37 deals totaling $16.3 billion. Even though there was a sequential gain, PwC described total deal value as “anemic,” with the weakest quarterly average deal size—$256 million—in the last four years. And on an annual basis, deal value and volume for the quarter fell compared to a year ago, which saw 42 deals for a cumulative $19.5 billion.

PwC noted that deal activity in the third quarter was paced by smaller, local market deals as opposed to larger deals that lead to higher overall value. The firm also said that with a number of quality assets expected to come to market, there may be an increase in large infrastructure deal activity through the end of 2013 and into 2014 that could in turn lead to improving M&A value for the sector.

There were several reasons for lower deal volumes in the third quarter, according to Jonathan Kletzel, U.S. transportation and logistics leader for PWC, including weaker financial investment and less deal flow involving Europe (which is down to near historic lows).

But the primary driver is that the overall M&A cycle for the transportation and logistics sector is maturing along with the global economy,” Kletzel told LM. “Historically there is a strong relationship between T&L deals and global economic output.”

In terms of the quality assets that could translate into more infrastructure-related deal activity, Kletzel said this area is mainly comprised of transportation infrastructure and state-owned transportation company privatizations, explaining there is usually better visibility into these types of deals since these are announced well in advance of the actual auctions/bidding.

“For example, there are several large railway, port and airline privatizations being discussed in Russia and Greece,” he said. “Also Brazil has discussed bringing more private investment into their airports and ports. The caveat is that these deals can often be pushed back for a variety of reasons.”

While there is currently a focus on smaller, local market acquisitions at the moment, Kletzel said it is unlikely to last into the long-term.

The reason, he said, is that smaller deal sizes and more local-market transactions are reflective of where things are in the M&A cycle after the recent post-global recession peak.

“When the deal market weakens, we typically see more of a focus on smaller, easier-to-execute, local deals,” he noted. “When the M&A market picks back up we tend to see more, larger, cross-border deals. In addition, as local-markets consolidate the larger national players tend to need to seek international growth through acquisition to the extent regulations allow. So we don’t expect that the shift toward smaller local-deals represents a structural change in the deal market for the transportation and logistics sector.”

Looking at investor types for transportation and logistics M&A activity, PwC said that in the third quarter strategic investors accounted for 75 percent of total deal volume, while the remaining 25 percent on the financial side is focused on deals of a smaller nature and also includes minority stakes in port services.

Kletzel said that despite their attenuated role in the overall deal market, financial investors have been paying relatively high valuations for their recent announcements, and have thus contributed to an overall rise in valuation for transportation M&A.

On a geographic, basis, PwC said Asia and Oceania are leading in terms of deal value and volume, with the U.S. heading up due to local market trucking and passenger air deals, and Eurozone deal making activity is on pace for one of its lowest totals in the last decade.