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Transportation and logistics: Deals 2022 midyear outlook

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Transportation and logistics M&A summary

The value of deal activity in the T&L sector continued to increase in the last 12-month (LTM) period (12 months ending May 15, 2022), despite global economic and political uncertainty. The value of deal activity in the LTM was $246 billion, a 6% increase over FY 2021, while deal volumes moderated somewhat, down by 7%.

Reduction in deal value (down 40%) and volume (down 9%) in cross-border transactions during the LTM was more than offset by increased activity within local markets. A core economic sector — and one undergoing significant disruption via tech innovation and supply chain restructuring — T&L provided financial investors opportunities to increase participation in the M&A market to over 62% of the value of all deals (up from 47%).

Despite increased total deal value in trucking, passenger air and shipping, the logistics subsector continued to be the engine of M&A activity, accounting for 36% of total deal volume in the LTM. 


Supply chain and infrastructure drivers

The high level of M&A activity in the T&L sector is expected to continue in FY 2022 as companies address a number of challenges. Due to uncertainties related to new COVID-19 variants, the war in Ukraine, material and equipment shortages and overall supply chain disruptions, many companies are considering near-shoring opportunities and attempting to gain more control over their supply chain.

The T&L sector has entered a second phase of recovery from the pandemic, but the reopening is impacting subsectors of T&L in different ways. Passenger ground transportation was significantly impacted in 2020, and continued to suffer from ongoing restrictions in 2021. However, the sector is expected to recover in 2022, with regional mobility rebounding as government and self-imposed restrictions soften. Similarly, air passenger transportation is expected to bounce back, despite inflationary costs, as consumers look forward to a summer of travel. The reopening of the economy, however, led to a decline in e-commerce activity, and now companies must consider their current e-commerce supply chain infrastructure in order to balance current capacity and costs without sacrificing future growth.

We expect that technology-backed solutions will continue to play a large role in T&L deals, with investors seeking technology-driven solutions to improve efficiencies and manage costs, especially in today’s inflationary economic environment. Attractive investment opportunities include real-time solutions to help truckers identify optimal routes to reduce fuel costs and tools that help freight forwarders manage fleets with less personnel, as well as automated solutions that enable warehouses to run 24/7.

Sub-sector outlook

Logistics

Although down from the record levels of FY 2021, the value of logistics M&A deals in the LTM was still over twice the FY 2019 value, an indicator of the sustained investor interest in the space. Stock shortages are challenging companies to invest in warehouse and fulfillment solutions, and shipment delays lead businesses to seek alternative approaches. As a result of softening COVID-19 restrictions, the growth in e-commerce activity has slowed, and companies are evaluating ways to make their supply chain capacity able to scale up or down as needed.

Near-shoring of production and sourcing is gaining popularity: Within-border deals value comprises 76% of total deal value in the LTM period versus 57% in FY 2021.

As a result of product shortages, companies also must consider the concept of just-in-time (JIT) inventory compared to just-in-case (JIC) inventory. All of this disruption is fueling logistics M&A activity, as strategic investors attempt to secure their supply chains while financial investors look to maximize their returns through attractive investments.

Shipping

The shipping industry has seen deal value grow in the LTM by over 11% from FY 2021. Supply chain issues still challenge the subsector due to pandemic-driven lockdowns in China, along with continued equipment and labor shortages in US west coast ports. As foreign production ramps up given the loosening of COVID-19 restrictions, we expect to see an increase in deal activity in this sector as investors seek to drive value by solving inefficiencies and bottlenecks.

In response to increased operating costs — including costs for fuel, containers and labor — we expect an increased focus on technology-backed solutions as key deal drivers. Shipping companies are already leveraging third-party solutions to identify fuel savings in real-time, and we expect investors to drive further growth and deal activity in this arena as capabilities are brought in-house by strategic investors or new ventures are brought to market through financial investors.

Trucking

The trucking sector is faced with trying to balance continued year-on-year increases in freight tonnage demand, while also facing driver and equipment shortages, increased regulation and increased cost of capital.

In spite of this — or because of it — M&A activity in the trucking sector continues to be robust, largely driven by strategic investors looking to consolidate the industry. Acquisitions are an attractive way for investors to acquire access to a labor force and equipment. And technology-driven solutions can help companies address evolving environmental, social and governance (ESG) regulations, while also providing them with opportunities to identify new areas of optimization and cost-cutting. 

Passenger air and ground

Passenger air and ground deal values were up 8% and 143%, respectively, in LTM versus 2021, while deal volumes remained stable. Passenger transportation services were severely impacted by the COVID-19 pandemic and the subsequent travel restrictions. As restrictions are lifted, we anticipate an uptick in deal activity as companies that weathered the pandemic look to consolidate their positions and take advantage of the growth path back to normalcy. This is evidenced by the competing bids by Spirit Airlines and JetBlue for Frontier Airlines. The industry is expected to grow largely due to the lifted COVID-19 restrictions, such as the lifting of testing requirements for US inbound travelers, as well as increased public demand for global tourism. We expect the growth in this subsector to drive deal volume as investors look to capture value.

The significant increase in deal value in passenger ground was mainly driven by the announced acquisition of Atlantia S.p.A. by Schemaquarantatre S.p.A. for $52.1 billion. Atlantia S.p.A. manages roadways and airports in Europe — infrastructure that is expected to be utilized more heavily going forward as air travel increases. 

“A generational level of disruption in the sector - driven by restructuring supply chains, the scale of e-commerce activity and a wave of technology innovation - continue to attract investors to the sector.”

— Darach Chapman, Transportation and Logistics Deals Leader

Key deal drivers

Navigating uncertainty

Many companies make acquisitions to drive digital transformation and advance their logistics offerings. They may be trying to combat the impact of current delays and supply chain congestion, including by investing in digitization and automation (either homegrown or through acquisitions). Shopify recently made a $2.1 billion acquisition of Deliverr to improve its logistics offering and create an end-to-end platform, while CBRE acquired Hillwood Investment Properties for $4.9 billion to enhance its logistics offerings by acquiring state-of-the-art logistics properties. Given the pace of disruption, investors are acutely aware of the need to integrate and capture value on an accelerated basis. More deal-makers are broadening their diligence lens at the start to capture the ESG, people and technology agendas of the target and ensure there is a clear plan to integrate and align across these aspects. 

Speed to unlocking value from deals

The recent supply chain bottlenecks have forcefully reminded companies of their dependency on their partners. Consumers have made logistics a key differentiator in their shopping experiences as they keep estimated delivery dates in mind. In turn, more companies are committing capital and resources to ensure a flexible, sustainable, and cost-efficient supply and delivery chain. This environment continues to attract more financial investors, who are particularly focused on the asset-light, technology-receptive areas of courier management, freight-forwarding solutions and third-party logistics consultants. 

Increasing resilience and security

Historically, supply chain automation was often viewed as a cost-saving initiative focused on expected future returns. Since the onset of the pandemic, automation has focused more on alleviating risk by providing greater information and visibility into the supply chain, enabling quicker and more proactive decision-making. Manufacturers have been analyzing opportunities for near-shore operations in order to lessen their dependence on overseas supply chains.

Some also want to acquire warehouses or other parts of their supply chain to mitigate risks, such as the lack of available shipping vehicles, inadequate workforces and congested ports. This dual shift — leveraging more technology and making more deliberate choices about which components of the supply chain should be owned versus rented — is expected to continue to drive deal activity, help reduce overseas reliance and improve supply chains as transparency is increased.

Contact us

Darach  Chapman

Darach Chapman

Principal, Transportation and Logistics Deals Leader, PwC US

Roland Stickler

Roland Stickler

Managing Director, Transportation and Logistics Deals Leader, PwC US

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