Total transportation and logistics deal volume reached a 20-year high with 1,291 deals in 2007, toppling the prior record reached in 2006, according to Intersections, PricewaterhouseCoopers’quarterly report on M&A in the global transportation and logistics industry.
Despite the record number of deals, total deal value in 2007 experienced a significant drop to $83 billion, down from the 20-year high of $164 billion set in 2006. This was due in part to several large deals announced in 2006, including competing bids for a passenger air target and the proposed acquisition of another passenger air target, however all but one bid was eventually withdrawn.
The prevalence of large deals announced during 2006 also led to a decline in the average deal size between 2006 and 2007 ($1 billion to $426 million, respectively), though the average deal size in the fourth quarter of 2007 increased slightly to $435 million from the prior quarter.
Given the tightening in the credit markets, transactions involving financial investors were expected to decline as a proportion of deal value in 2007. However, financial investors accounted for nearly 45 percent of deal volume, up from 40 percent in 2006.
Accordingly, it appears the tightening of the credit markets did not play as big of a factor as originally anticipated with regard to their activity in the transportation and logistics industry, particularly since financial investors accounted for the majority of announced large deals within U.S. borders in 2007.
The pace of M&A activity in the transportation and logistics industry was unaffected by the noticeable decline in total acquisitions by financial investors in the fourth quarter,”said Kenneth H. Evans, Jr., U.S. transportation &logistics sector leader, PricewaterhouseCoopers. “Notwithstanding the impact of increased risk premiums on credit liquidity during the second half of the year, the pace of announced deals actually increased in the fourth quarter.”
Looking forward, PricewaterhouseCoopers predicts that shipping and passenger air segments are likely to continue to account for large portions of deal value, particularly given the impact of regulatory barriers in the U.S. on other modes of transportation.
The desire to acquire large targets has been evidenced over the past two years by the number of mega-deals (acquisitions with a proposed transaction value of at least $1 billion) that have been announced. Twenty mega-deals were announced in 2006 and 16 announced in 2007. Of the 20 announced in 2006, 13 were completed with the remaining seven being withdrawn. Ten of the 16 deals announced in 2007 have already been completed and only two have been withdrawn.
Based on value, Western European firms have been the leading acquisition targets for M&A deals worth more than $50 million in 2007. Also notable is the increase in deal value for Asia Pacific targets during the fourth quarter of 2007, which reached 23 percent as compared to 17 percent for all of 2007. The spike in value during the fourth quarter was a result of the announcement of several large deals for targets in Turkey and Singapore.
Western Europe also continued to lead the way in deal volume in 2007 for deals worth more than $50 million. Transportation deals for BRIC targets announced during 2007 jumped by 28 percent over the prior year due to an increase in deals for targets in China and India. Of the 32 deals announced for BRIC (Brazil, Russia, India, and China) targets, 18 were located in China and Hong Kong, eight of which were announced in the fourth quarter.
“It is interesting to note that the level of deal volume for BRIC targets announced during the fourth quarter of 2007 was almost entirely made up of targets in China,”said Klaus-Dieter Ruske, global transportation and logistics sector leader, PricewaterhouseCoopers. “This is a significant increase from deals targeting Chinese companies in the fourth quarter of 2006.”
For more information and to access the Intersections report, visit: www.pwc.com/transport.
PricewaterhouseCoopers’ Transportation & Logistics practice provides industry-focused assurance, tax and advisory services to over 250 public and private companies.