Transportation and logistics M&A activity drastically slows in first quarter 200

Transportation and logistics M&A activity drastically slows in first quarter 2009, finds PwC
Average deal values decline from US$513 million to US$159 million

JUNE 1, 2009 — Deal activity dropped significantly during first quarter 2009 in the global transportation and logistics (T&L) industry, according to a report released today by PricewaterhouseCoopers LLP (PwC): Intersections: First-quarter 2009 mergers and acquisitions analysis.

Eighteen deals were announced at a disclosed value of at least US$50 million each, down from 43 such deals in fourth quarter 2008.

Activity continued to increase among non-US parties which made up 94% of deal volume for T&L targets in the first quarter, up from 71% in 2007 and 81% in 2008.

Average deal values declined significantly, from US$513 million in 2008 to US$159 million in first quarter 2009 (for deals with a value of at least US$50 million). In place of large deals worth at least US$1 billion were minority stake purchases, accounting for 39% of deals, up from 30% of the total deals announced in 2008.

The continued slowdown of M&A activity for the Global T&L sector during the first quarter of 2009 presented interesting changes in behaviour among deal participants, said Todd Thornton, Canadian T&L sector leader at PwC in Canada. Most notable is the shift toward minority stake purchases, which can be attributed to tight credit and strategic buyers’ aversion to risk. We expect these factors will lead to minority stake purchases continuing to make up a large percentage of deals announced during the rest of the year.

Canadian M&A activity during the first quarter of 2009 was no different then what we saw globally”, Thornton said. While activity is down, we did see some action in the various sectors. CargoJet Airways’ acquired the remaining 49% interest in Prince Edward Air Ltd. In trucking, we saw purchases by a strategic investor and in rail, Canadian National (CN) Railway sold to GO Transit, the Toronto area commuter rail agency, CN’s Weston division for expanded GO service between Union Station and the regions northwest of the city.

Intersections reports that passenger air and logistics sectors globally saw the most deal activity in value during first quarter 2009, a change from past years when shipping took the lead. Passenger air accounted for 34% of M&A activity, compared with 17% in 2008 and 27% in 2007. Deal activity for logistics targets also increased over previous years, accounting for 32% of activity during first quarter 2009 compared with 13% in 2008 and 14% in 2007.

Strategic investors continued to account for the majority of deals for the T&L industry, as previously predicted by earlier editions of Intersections. Strategic investors accounted for more than 80% (15 deals) for first quarter 2009, up from approximately 60% of deals announced in 2007 and 2008. There was an overall absence of deals in the shipping sector by financial investors during the first quarter. In previous quarters, financial investors have shown more interest in shipping than other transportation modes.

The pace of deal activity, as measured by the number of deals announced for T&L targets, has declined significantly, with just 18 deals in first quarter 2009. Large deals (with a disclosed value of US$1 billion or more) were nonexistent for the T&L sector during the first quarter. This marks a huge drop from the 22 large deals announced in 2008 and 17 in 2007. A focus on capital preservation by potential buyers contributed to the absence of large deal activity. The difficult financing environment witnessed in 2009 has caused well-capitalized strategic buyers to engage in smaller deals, including minority stakes, divested assets, and distressed targets. It is likely that this trend will continue, with a general lack of large deals being made in the T&L sector throughout 2009 and possibly beyond.

T&L deals shifted tremendously during first quarter 2009 away from North America, with acquirer and target parties focused heavily in the United Kingdom-Eurozone and Asia-Oceania regions. Deals in these regions were up to nearly 80%, in comparison with 55% in 2007. A decline in activity in South America was due to a reduction in deals for Brazilian targets, which had been a primary contributor to regional deals in past quarters. BRIC (Brazil, Russia, India, and China) targets’ deal activity consisted of two deals in Brazil and one deal in China during the first quarter.

Local-market deals in all nations increased to 80% during first quarter 2009, compared with approximately 60% in 2007 and 2008, showing that the predicted trend of globalization leading to increased cross-border consolidation did not hold true. This is likely attributable to a preference by the buyers to build scale in their own markets versus expansion into new geographies during this difficult operating environment for T&L companies.

While the overall number of deals was drastically reduced during the first quarter, deal activity in the transportation and logistics industry as a whole can nonetheless be considered robust, especially when compared with this sector a€™s activity over the past 20 years, said Klaus-Dieter Ruske, global T&L sector leader, PricewaterhouseCoopers. While this is a positive sign, we believe that financing and overall economic sentiment will continue to discourage a rebound in T&L deal activity. Moving forward, we will likely see M&A activity driven by need because a significant increase in deal activity will likely not occur until we see substantial recovery in economies around the globe.

This edition of Intersections includes commentary on the privatization of infrastructure, which discusses the future of global and U.S. transportation infrastructure privatization deals with a heavy focus on the United States.

Additionally, this issue of Intersections contains a special report, "T&L companies find auto woes are contagious," which includes executive commentary on the effect of the current auto industry restructuring and its impact on the global transportation and logistics sector. For information and to access the full report, visit www.pwc.com/transport.

About PricewaterhouseCoopers LLP
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,200 partners and staff in offices across the country.