Analysis conducted by global consulting firm PricewaterhouseCoopers (PwC) indicates that merger and acquisition (M&A) activity in the trucking industry should pick up modestly in the bottom half of 2014 – especially among TL carriers.
“Management teams continue to take a measured approach to M&A and remain primarily focused on local deals aimed at consolidating existing markets and strengthening their core businesses,” noted Jonathan Kletzel, U.S. transportation and logistics leader for PwC. “Similar to what we saw at the start of the year, deal activity was primarily driven by increased activity in the shipping and trucking sectors, with an emphasis on addressing overcapacity, fragmentation and sourcing higher margin services.”
Looking ahead, PwC believes transportation and logistics M&A activity will increasingly focus on higher margin, ancillary operations, including assets that benefit supply chain economics and lead to improved operating efficiencies.
Michael Portnoy, an industry analyst in PwC’s industrial products practice, told Fleet Owner that while trucking is likely to be a leader in transportation M&A, that should be qualified by noting that many of these companies are smaller so the deal sizes may not “grab headlines” in his words.
“Oftentimes the larger company will acquire smaller competitors as larger companies have better access to capital and smaller companies may seek an exit via strategic acquisition,” he added. “Much of trucking is fragmented compared to other transportation modes and can benefit from some consolidation, but we are seeing more activity in truckload.”
PwC also noted that that while transportation and logistics deal-making accelerated in the second quarter this year, with the total volume and value of deals increasing over the first quarter of 2014 as well as the second quarter of 2013, overall M&A activity in the sector year-to-date remains subdued compared to historical standards.
The firm said 51 transportation and logistics transactions worth $50 million or more were concluded in the second quarter this year, totaling $20 billion, compared to 38 deals worth $16.2 billion in the first quarter of 2014 and the 39 deals valued at $16.6 million recorded in the second quarter of 2013.
PwC also noted that so-called “mega deals” or transactions worth $1 billion or more remained low in the second quarter this year, which contributed to the decrease in average deal value to $393 million in compared to $427 million in the first quarter of 2014 and $425 million in the second quarter of 2013.
Overall, most of the quarter this year remained primarily focused on local market deals continuing a trend that is putting 2014 on pace to be one of the weakest years for cross-border M&A activity over the past decade, Kletzel said.
He noted that local deals accounted for 71% of deal activity during the second quarter, compared to 76% in the first quarter and 69% in the second quarter of 2013, with the motivations driving such “local” deals including relief from relative sector fragmentation – particularly acute in the TL sector – and in some cases, higher return possibilities within these nations.
“We have seen a tendency for [trucking] acquisitions to focus on expanding service portfolios as a means to boost margins,” added Portnoy.
“While there is still some risk aversion on the part of acquirers, there is a healthy appetite for a more narrow set of targets as indicated by increasing valuations,” Kletzel pointed out. “Over time, we expect shipping, trucking and infrastructure deals to lead M&A activity in the transportation industry. As a result, we expect a modest recovery in M&A announcements during the second half of 2014.”