With growing uncertainty about the pace of the world’s economic recovery, merger and acquisition (M&A) activity within the global transportation and logistics (T&L) sector dropped in the third quarter this year compared to deal-making action during the first two quarters of 2010 , according to a new report from consulting firm PricewaterhouseCoopers LLC (PwC).

“The most significant potential driver of M&A is confidence in the economic recovery which could be supported by consistently positive economic reports on jobs, spending and inventory levels,” Kenneth Evans, head of PwC’s U.S. transportation and logistics practice, told Fleet Owner.

“The major factor [in the decline of M&A activity] is the degree of uncertainty over the persistence of the recovery,” he said. “Economic outlooks drive expectations for future freight demand as well as the degree of caution that acquirers may feel when considering expansion through acquisitions.”

Another factor that impacts M&A levels is the ability of acquirers to finance new deals, though Evans noted that both internal and external sources of financing for new deals have generally improved across the transportation sector.

According to PwC’s research, in the third quarter of 2010 the number of announced M&A deals within the global T&L space remained above the pace of 2009, with 31 deals in Q3 this year compared to 26 in Q3 of 2009. However, the Q3 pace is down slightly from 32 deals in the second quarter of this year.

On top of that, the value of M&A deals is down as well, dropping to $12.8 billion in Q3, down from $14.1 billion in Q2 and $16.1 billion in Q1 of 2010.

“Despite several positive signs of the health of the M&A T&L deal market, including total deal value, average deal value and volume all being up compared with 2009 … these metrics have remained relatively unchanged over the course of 2010,” said PwC’s Evans. “Due to the consistently flat rate of activity, our predominant conclusion is that recovery in T&L deal activity has paused.”

He added that U.S. trucking M&A activity has historically accounted for a smaller proportion of deals than other transportation modes, but the relative size of for-hire carriers compared to carriers in other modes contributes to this difference.

“Trucking can be a viable market for M&A deals provided that tonnage and capacity utilization levels continue to improve, which would warrant expansion via M&A,” Evans explained.

At this point, however, worries about a protracted economic recovery or another recession have many global buyers and sellers taking a “wait-and-see” approach to deal making, he pointed out.

T&L companies are also becoming more cautious and diligent about what they are buying, according to Evans. “They no longer favor diversification as a global M&A theme, but rather are looking for deals that can provide new strategic opportunities,” he said. “More than ever, deals today must fit strategically and commercially with existing operations and drive synergistic growth.”

Going forward, PwC is not expecting a large jump in overall T&L M&A activity, but does expect the balance of risks to favor an improvement in M&A levels within the sector over the next several quarters as the economy is likely to continue its modest recovery.