Report: Credit crunch slows global transport, logistics M&A activity

Current credit market conditions and slowing activity in the United States will see merger and acquisitions in the global transport and logistics industry fall short of 2007 levels, according to PricewaterhouseCoopers.

The accountants' quarterly report, Intersections, shows that both deal volume and value in the sector declined during the first quarter of 2008. However, the 45 deals worth at least $50 million each announced in the first few months of the year is on track to exceed 2006 levels.

The report indicates that fears of a U.S. economic slowdown may be lowering the attractiveness of U.S. targets, as well as the willingness and ability of U.S. acquirers to make deals. Evidence of this is highlighted by the 38 deals excluding a U.S. entity as either the acquirer or target being on pace to exceed both 2006 and 2007 levels (119 and 142 deals respectively). Additionally, deal value for non-U.S. acquirers and targets ($15.9 billion) is also set to exceed the $53.4 billion reached in 2007.

Real activity in the transportation and logistics industry tends to decline during periods of recession, said Kenneth H. Evans Jr., U.S. transportation and logistics sector leader at PricewaterhouseCoopers. So, it's no surprise that targets are down according to the first quarter analysis. 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. The turbulent financial market has also shrunk the proportion of financial investors in transportation and logistics deals, now down to one-third of the 45 deals announced in the first quarter, lower than 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 accountants said.

Logistics targets accounted for the largest percentage of announced deal value in the first quarter, due primarily to the announcement of two large deals totaling $5.73 billion. For the rest of the year, the passenger air category is likely to regain the lead due to the planned $17.7 billion merger between Delta Air Lines and Northwest Airlines, creating the world's biggest airline.

The Intersections report also found that large deals (those with 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 about $11 billion.

On a geographical level, firms in Asia and Oceania were both the leading targets and acquirers in deal announcements of more than $50 million during the first quarter, while there were only five U.S. such deal announcements in the first three months of 2008.

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 for 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. To access the Intersections report, visit: www.pwc.com/transport. 

Source: American Shipper