M&A Activity in Transportation and Logistics Sector Sees Uptick in 3Q

Deal volume and deal value in the transportation and logistics (T&L) sector are on an upward trajectory, compared to the first half of the year, according to a new PricewaterhouseCoopers LLP report, Intersections: Third-quarter 2009 global transportation and logistics industry mergers and acquisitions analysis. Twenty deals with a total value of $6.2 billion were announced during the third quarter in the T&L sector, compared with 31 deals announced with a value of $5.4 billion in the first half of 2009. The improvement in the pace of deal announcements can be attributed to passenger air deals, several of which involved entities in the Asia & Oceania region, as well as smaller deals involving U.S. entities.

"We're cautiously optimistic that the third quarter represents a turning point for the transportation and logistics sector," said Kenneth Evans, U.S. transportation and logistics leader for PricewaterhouseCoopers. "However, we realize that there are a number of factors that need to be considered before a full recovery can be claimed – including the fact that many of the larger deals are distressed deals."

The first two large deals of 2009 were announced during the third quarter, accounting for 38% of total deal value. The resumption of large deal activity also resulted in an improvement in average deal value for the quarter. The average value of deals announced during the third quarter was $308 million, compared to $145 million for the first half of 2009.

Interest in passenger air deals increased sharply in 2009. In 2008, passenger air deals accounted for 17% of total deal value but jumped to 33% through the first three quarters of the 2009. Passenger ground targets also saw a significant increase in the third quarter, accounting for 32% of total deal value in Q3, compared to 13% in the first half of 2009.

Interest from financial investors picked up in the third quarter, accounting for 35% of deal volume, compared to 16% during the first half of 2009. However, strategic investors still account for a majority of deals in the third quarter (65%). Notwithstanding the resumption of large deals in the third quarter, most activity remains concentrated in smaller deals and those with undisclosed values. In upcoming quarters, the proportion of M&A activity attributable to larger deals is likely to gradually improve as credit markets recover and rising stock markets provide strategic acquirers with the financing necessary to engage in larger deals.

"Two interesting trends that jump out in the third quarter are a renewed interest from the financial investors, suggesting that credit markets might be loosening up to some extent, as well as the increase in the number of passenger-related targets," said Klaus-Dieter Ruske, global transportation and logistics leader for PricewaterhouseCoopers. "From the data we have seen in Q3 2009, passenger transportation companies are the focus of the highest M&A values, driven primarily by two deals in the $1 billion range. We believe that passenger transportation deals are likely to continue to drive much of the deal activity in the transportation and logistics sector for the foreseeable future due to the distressed nature of the deals we've seen this quarter, but these deals could be somewhat tempered by regulatory barriers."

While global deal activity is making strides and Q3 shows signs of improvement compared to the first half of 2009, the importance of the Asia & Oceania region for the T&L sector cannot be understated. During Q3 2009 Asia & Oceania accounted for the vast majority of all deals – whether as acquirers or targets. Targets located in Asia & Oceania accounted for 50% of deal volume and 62% of deal value while acquirers in the region accounted for 55% and 67% of deal volume and value, respectively, during the third quarter.