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 mergers and acquisitions 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air target and the proposed acquisition of another passenger air target; however, all but one bid was eventually withdrawn.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.
In 2007, the announced deal value associated with passenger air targets declined in favor of trucking and passenger ground targets, and shipping targets, respectively. The increase in deal value for shipping targets was driven by the announcement of two large deals in the fourth quarter of 2007 accounting for a total of $2.9 billion. 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 United States on other modes of transportation.
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,” says Kenneth H. Evans Jr., U.S. transportation & logistics sector leader for 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.”
The desire to acquire large targets has been evidenced over the past two years by the number of megadeals (acquisitions with a proposed transaction value of at least $1 billion) that have been announced; 20 megadeals 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 already have been completed, and only two have been withdrawn.
For more information and to access the Intersections report, go to www.pwc.com/transport.