Transportation and logistics: US Deals 2023 outlook
Transportation and logistics M&A summary
In the 12 months ended November 15, 2022 (LTM Nov-22), both deal value ($195 billion) and deal volume (264) in transportation and logistics (T&L) declined when compared to full year 2021 (FY21) by 16% (value) and 24% (volume), respectively.
An acceleration in e-commerce and pressure on global supply chains had driven up demand for T&L services and freight prices during the pandemic years, and M&A followed. Sellers were lured by growing valuation multiples, and buyers were attracted to the sector because of the significant changes occurring, the magnitude of which could reinvent the sector. However, in the latter half of 2022, the easing of freight prices, the stabilization of supply chains, increased capital costs and economic uncertainty have cooled the red-hot deal activity of the past 24 months.
Transportation and logistics outlook
As noted above, certain factors have conspired to temper M&A activity in the sector — particularly during the second half of 2022. Total deal value declined 69% in the second half of FY22 compared to the first half, with Q3 deal value ($29 billion) falling to the lowest levels since Q2 FY20. This decline has continued into Q4, which is trending lower than the previous quarter. Deal volume also began to drop in Q3 of this year, and Q4 is moving in the same direction. Despite this recent softening, we believe the overall environment will continue to support robust dealmaking into 2023 and beyond.
Global players whose results were boosted during the pandemic are using this time as an opportunity to vertically integrate and expand onshore capabilities in foreign locations.
Participants who suffered in the battle for capacity over the past two years are taking steps to reduce their exposure. Technology innovations in the sector continue to drive deals and support integration synergy opportunities. Labor shortages and the inexorable advance of e-commerce are encouraging companies to explore inorganic growth agendas despite the overall economic headwinds. Financial investors would seem to be taking advantage of these dynamics in the sector. They increased their deal value activity from $110 billion in FY21 to $124 billion in LTM Nov-22, despite the decline in the overall market.
Evaluating divestiture opportunities
The pandemic disrupted the T&L sector more than most. The past two years have brought considerable new capital to the sector, along with technologies, new players and an updated, somewhat defensive view of capacity and supply chain. Participants are currently projecting and anticipating the post-COVID logistics environment. They’re deciding where to compete and where to drop back, and they’re mapping out divestiture plans accordingly. Smaller players are evaluating the cost to compete in that future state — whether that comes in the form of technology, labor or capital — and are weighing that against today’s valuations and divestiture opportunities. These drivers will sustain the flow of assets to market as the sector recalibrates after a couple of years of unprecedented valuations and corresponding deal activity. An upcoming PwC study examines how actively embracing divestitures and making timely decisions can help increase the chances of value creation.
“Deals activity in T&L softening in FY22 as participants recalibrated expectations for the impact of COVID-driven changes to the sector and digested the prospect of a more challenging economic environment.”
