Both deal volume and value in the transportation and logistics industry declined during the first quarter of 2008, according to the PricewaterhouseCoopers LLP Q1 2008 edition of Intersections: Global Transportation &Logistics Mergers and Acquisitions Analysis. Global Deal activity is not on track to match the levels seen in 2007; however, the 45 deals (worth at least $50 million each) announced in the first quarter are on track to exceed 2006 levels.
 
The credit markets and slowing deal activity in the U.S. significantly affected deal volume in the first quarter of the year. When excluding deals in which a U.S. entity was the acquirer or target, the number of deals (38 deals) is on pace to exceed both 2006 and 2007 levels (119 and 142 deals respectively), indicating that a concern over an economic slowdown in the U.S. may be lowering the attractiveness of U.S. targets, as well as the willingness and ability of U.S. acquirers, to make deals, according to the PricewaterhouseCoopers analysis. Additionally, deal value for non-U.S. acquirers and targets ($15.9 billion) is also on pace to exceed the $53.4 billion reached in 2007.
 
Deal activity in the transportation and logistics industry tends to decline during periods of recession. So, it’s no surprise that targets are down according to the Q1 analysis,”said Kenneth H. Evans, Jr., U.S. transportation and logistics sector leader at PricewaterhouseCoopers. “Deals involving non-U.S. entities are driving sector growth so far this year, and this trend will likely keep up until we see the loosening of United States credit market conditions.”
 
In the first quarter of 2008, logistics targets accounted for the largest percentage of announced deal value, due primarily to the announcement of two large deals totaling $5.73 billion. For the balance of 2008, the passenger air category is likely to regain the lead in announced deal value due to the announcement of a $17.7 billion merger to create the world’s largest airline, according to PwC.
 
As noted in the Intersections report released in Q4 2007, the trend of increased financial investment in transportation and logistics deals was not expected to continue. The Q1 2008 report shows that financial investors accounted for just one-third of the 45 deals announced in the first quarter, lower than the proportion of financial investment in both 2006 and 2007. Financial investors appear to have been negatively impacted by the tightening credit market, and specifically, an increase in risk premiums and decline in debt market liquidity. PricewaterhouseCoopers predicts that well-capitalized strategic investors will hold the best relative position to engage in new deals in this sector.
 
The report found that large deals (disclosed values above $1 billion), are on pace to exceed both 2006 and 2007 levels. Overall there were six large deals announced in the first quarter with a total deal value of approximately $11 billion. None of these deals were competitive, which is significant given that competing deals were a prominent factor in both 2006 and 2007 deal-making. In 2006, four deals were announced with disclosed values above $10 billion; however, no deals met this threshold in 2007 or in the first quarter of 2008. It is also important to note that three of the four $10 billion-plus deals announced in 2006 were withdrawn.
 
Firms in Asia and Oceania (Australia, New Zealand Melanesia, Micronesia and Polynesia) served as both the leading targets and acquirers in deal announcements of more than $50 million during the first quarter. Due to fewer planned acquisitions of U.S. targets -there were only five U.S. deal announcements in total -the pace of all overall North American deal targets declined significantly during Q1.
 
“Given the relative weakness of the dollar, it’s surprising that U.S. targets are not more attractive to foreign investors,”said Klaus-Dieter Ruske, global transportation and logistics sector leader, PricewaterhouseCoopers. “Cross-border deals involving U.S. targets will pick up as worries over an economic recession subside -a trend we hope to see play out later this year.”
 
Consistent with findings from previous quarters, interest in BRIC targets, especially in China, continued to hold strong in Q1 2008. Chinese targets accounted for half of the eight proposed deals within the BRIC nations, driven primarily by the consolidation of the transportation and logistics sector within China. It’s also important to note that each of the four announced deals for targets in China were local market, or within-border, deals.
 
For more information and to access the full report, visit:www.pwc.com/transport.