Jeff Berman, Group News Editor -- Logistics Management, 5/21/2008
NEW YORK—Transportation and logistics deal volume and value for the first quarter of 2008 was down, and total global deal activity is currently not on pace to equal 2007, which hit a record-high, according to the new edition of “Intersections: Global Transportation & Logistics Mergers and Acquisitions Analysis,” a quarterly report from PricewaterhouseCoopers.
While the report indicates that 2008 may not match 2007’s performance, this year is currently on track to exceed 2006, with 45 deals—worth at least $50 million each—announced in the first quarter of 2008. But if deals for $50 million or more involving
U.S.-based entities—where they are an acquirer and/or target—were excluded from the total value and volume of Q1 deals, 2008 would be on pace to surpass to exceed 2007, noted the report. Excluding U.S. deals would bring the quarterly total to 38; 2007’s total for deals at $50 million or more was 142.
The report also noted that the pace of deal activity for the quarter—as measured by the total deal value—at $19 billion was off compared to final tallies for 2006 and 2007 at $161 billion and $81 billion, respectively. But the pace of deal activity as measure by the value of deals when excluding deals involving a U.S. entity were up in the first quarter at $15.9 billion compared to all of 2007 at $53.9 billion
Deals cited in this report represent all announced deals for these time periods—as opposed to completed deals—and do not parse out deals that were withdrawn, intended, or pending.
PricewaterhouseCoopers U.S. transportation and logistics sector leader Ken Evans told LM in an interview that deals in which a U.S. concern is involved are off, due to things such as the tight credit market and a slowdown in deal making activity, which often occurs when the economy is not doing well.
“There are ongoing concerns about the U.S. economy, which affect earnings, cash flow, and valuation,” said Evans. “That will continue to make things difficult. I would be hard-pressed to predict to a turnaround next quarter or the one after that, but I don’t believe it will be a long-time correction.”
Tom Connolly, managing director of EVE Partners, an Atlanta-based transportation and logistics banking boutique, agreed with Evans, noting that economic conditions along with the credit crunch continue to impact domestic deal-making.
“Volumes have been down, fuel continues to rise, and credit is tight, thus leading to uncertainty in valuing businesses,” explained Connolly.
And the report stated that concern over the U.S. economic slowdown may be lowering the attractiveness of U.S. targets, as well as the willingness of U.S. acquirers to make deals. It also said that the deterioration of U.S. bank balance sheets and commensurate decline in the ability of acquirers to obtain local financing may also be contributing to this trend.
Another trend cited in the report was that there were a lower number of deals made by financial investors (15) rather than strategic investors (30) in the first quarter. Evans said this is a trend that may continue in the U.S. but not in the rest of the world.
“It is gratifying to know that deal activity is not dead [outside of the U.S.] and is actually at a pretty strong pace,” said Evans.
Even with deal making on solid footing outside of the U.S., EVE’s Connolly said that while the need and desire for companies to grow and diversify—through deals—is still there, it is tempered somewhat as most companies have focused on their core business and shoring it up during this volatile period.
As for the rest of 2008, Connolly said there are a few things to keep in mind.
“The credit crunch is still having a very large impact on private equity and their ability to do deals as many funds prefer or are restricted from doing all equity deals,” he said. “It is very possible the deal-making activity will remain slow for 2008 as the recession and economic uncertainty continue to pick up momentum. We have seen more Asian and Middle East investors investigating deals in the U.S. Market and seem to be positioning to do some U.S. deals once the economy stabilizes, and they still can take advantage of the currency exchange.”
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