2011 likely to see increase of average deal sizes and return to landmark strategic M&A decisions.
Global M&A activity in the Transport & Logistics sector is likely to increase in 2011, according to an analysis by KPMG in the UK. Following a phase of internal consolidation during the economic crisis, many T&L companies are expected to return to more strategic M&A deals driven by consolidation considerations, KPMG predicts. Having worked successfully on their cost base, many transport and logistics companies will be looking to economies of scale for the next level of operational improvement, which should further drive M&A activity.
KPMG’s analysis shows that EBIT multiples reduced significantly during the crisis, with significantly fewer transactions. However, the M&A activity that did take place was characterised by more profitable businesses being acquired (with average EBIT margins of target companies up at 19% in 2009 compared to 11% in 2007). This indicates a flight to quality in a difficult market. During 2010, valuation multiples recovered but still remained well below the 2007 peak. The average EBIT margin for acquired companies fell back to 16% in 2010. (See A1 of attachment)*
Last year was characterized by a return to more strategic M&A deals, such as the acquisition of Burlington Northern Santa Fe by Berkshire Hathaway, the takeover of Arriva Plc by Deutsche Bahn AG or the merger between BA and Iberia, a trend that is set to continue in 2011. (See A2 of attachment)
James Stamp, Partner in the UK firm’s transport advisory group comments: “Strategic M&A will once again become part of T&L companies’ agendas as consolidation is a significant opportunity – indeed necessity - for many players in the sector. Having survived the downturn and emerged leaner, many companies will be switching their focus externally again. This is helped by the fact that the outlook for financing opportunities started to brighten during 2010 and into early 2011. This recovery will once again drive debt backed M&A activity, although corporates may once again face competition from financial buyers for quality assets”
“But 2011 will not be a return to the pre-crisis conditions. The potential for oil-price related shocks will be of particular concern to the T&L sector, along with more general concerns about sovereign default, the strength of the global recovery, and the imminent wave of debt re-financings. In order to secure successful M&A transactions the combined entity business model will need to be robust, with acquisition debt levels capable of being serviced under heavily sensitised scenarios. ”
Analysis of the last four years showed that the EMEA and Americas regions with their mature markets are mainly driven by consolidation, whereas the ASPAC M&A market is relatively stable in terms of deal numbers and volume. ASPAC companies’ excellent liquidity may spur M&A activity in the Americas and EMEA regions in 2011 and the coming years. (See A3 of attachment)
The KPMG analysis also suggests a strong correlation between deal activity in the T&L sector and GDP development. This is in line with the common observation, that the T&L sector is an early indicator for economic performance. This correlation will presumably continue to materialize in 2011, with a growing M&A activity in T&L. (see A4 of attachment)
The first half of 2011 is scheduled to see major IPOs of T&L companies in the EMEA region. For example, the shares in Hapag-Lloyd held by TUI are scheduled for IPO in the second quarter of 2011 and TNT N.V. plans to separately list the express business, sometime around June 2011. These transactions will set the tone for further EMEA M&A activity in 2011, representing a litmus test for current attractiveness of T&L companies.
*Note to editors: KPMG’s analysis comprised global and regional deal volumes and numbers for T&L and general M&A activity. Furthermore, 180 closed T&L deals from 2007 to 2010 were selected for the multiple analyses. All deal data by Thomson Financial; the GDP figure is sourced from “International Monetary Fund, World Economic Outlook Database, April 2010”.