Transportation and logistics: US Deals 2024 midyear outlook

Strategic investors drive T&L deal momentum despite economic headwinds

The transportation and logistics (T&L) sector saw a total deal value of $29.7 billion with 52 disclosed deals from November 2023 to April 2024, compared to a $22 billion deal value and 47 disclosed deals in the prior six months. Although stable, these numbers represent only 61% and 68% of the levels seen before COVID-19.

T&L companies are facing several economic challenges, including rising operating costs and high capital costs that contrast with low freight rates. Customers also still expect the same level of service standards set during COVID-19, which continually pushes the competitive bar higher. From an M&A perspective, strategic investors have been much more active than their financial counterparts in the sector, accounting for 86% of deal volume and 91% of deal value in the last six months. They appear to be adapting better to this environment for the following reasons:

  • Those who have been in the sector for an extended period benefited from the surge in freight rates from late 2020 to late 2022 and may be less reliant on external capital. 
  • Long-term involvement also helped them take a longer view of the freight rate cycle.
  • These companies are often better equipped to find deals that present immediate cost savings and synergy potential and are more inclined to follow a transact-to-transform approach.  

Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.

How market conditions are impacting M&A strategy

The current economic environment consists of higher interest rates compared to recent historical norms, suppressed freight rates and volumes due to cautious consumer outlook weighed down by inflation, and M&A participants grappling with alignment on valuations. These factors have contributed to stress across companies in the T&L space, compounded by the fact that many companies invested heavily to expand supply to meet the COVID-19-driven demand that has since somewhat abated.

This has impacted M&A activity in many ways. Strategic investors appear better positioned to navigate these headwinds and are dominating deal activity, hoping to catch the front end of buyer and seller alignment around valuations. Additionally, the sector is seeing fewer megadeals, or deals focused on pure volume or capacity capture. Instead, there's a rise in transactions involving niche, sector-focused offerings. These businesses cater to critical customer needs with a high service element, often isolated from macro sector trends. Despite the prevailing challenges, there remains a sustained interest in transactions that offer the potential for digital enhancement, technology upgrades or cost-saving synergies.

Key trends and developments to monitor

What’s now?

Looking ahead, we will keep a close eye on these dynamics within the sector:

  • How freight rates change over time, and whether the capacity market can reach a balance that allows for higher rates to improve profitability and offer more transaction options for buyers and sellers.
  • Sponsors have accumulated a significant portfolio of assets in the sector, both pre- and during COVID-19, which will need to be monetized. If valuations adjust to a level that brings these assets to market, it could lead to a significant uptick in overall deal activity.
  • This year could present some important macro impacts to the sector including the evolution of international trade flows, changes in tariff policies or the significant expansion of the container fleet. 

What’s next?

Dealmaking continues to be an important and versatile tool for the transportation and logistics sector. With significant advancements in technology in recent years, companies in this sector should assess their current position and determine if M&A can help them move forward. Additionally, as sustainability becomes increasingly important, companies should strategize and explore how dealmaking can support their environmental goals. Beyond the controllable factors, companies should monitor potential changes in global trade and policies that could affect the sector and consider if leveraging M&A can help provide the flexibility needed in this changing landscape. 

“Freight rates, interest rates and the upcoming election could all significantly impact the economics of the sector and resultant M&A activity.”

— Darach Chapman, Transportation and Logistics Deals Leader

The bottom line

In recent years, deal activity in the T&L sector was dampened by a combination of macroeconomic and sector-specific factors. While strategic players managed to leverage their advantageous position in terms of cost of capital and longer investment horizons, the overall volume of deals remained relatively low compared to previous years. As we enter the second half of the year, there are compelling reasons to anticipate an increase in deal activity — including the potential movement of freight and interest rates and the upcoming election cycle — creating a more favorable environment for dealmaking in the T&L sector.

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