Companies in transport distribution and logistics could find themselves targeted by private equity investors, according to the latest study from PricewaterhouseCoopers.
These are challenging times in the transport, distribution and logistics (TDL) sector, particularly for haulage and express parcel operators.
PwC found that, overall, the business services sector is bucking the trend with merger and acquisition deal flow on the increase.
The TDL sector is already operating on thin margins. With rising fuel costs and lower demand in the economy there will be a shakeout in the sector, with distress sales and some exits from the sector altogether, it said.
Consolidation is ongoing within the sector driven by customer demands for increasing choice and flexibility in terms of both national and international delivery solutions and the trend towards establishing ‘multimodal’ transport and logistics services.
In addition, with ongoing pressure from customers seeking greater supply chain efficiencies and economies of scale, TDL providers need to achieve a certain density of operations to improve service and procurement power.
The report found that a growth area within the TDL sector was waste logistics with customised solutions required for recycling plastic, glass and paper, in both the commercial and municipal sectors. Final mile logistics was another interesting area, it said, requiring innovation and investment on the back of the growth in internet-based home shopping.
Looking at the overall state of the business services sector, the study found that with price expectations slowly realigning, many investors see 2009 as a good time for buying opportunities.
“While the financial markets continue to struggle, with the credit crunch remaining very much a reality, the business services sector continues to see a healthy number of M&A deals. In the UK Business Services deal volumes reached a five year high with 517 transactions recorded between 1 July 2007 and 31 June 2008, compared with 480 in 2006/7, although deal values have dropped during the same period.
Simon Hawes, head of business services at PwC, said: “Private equity firms have a real opportunity to pick up some good assets. In the last major downturn in 1991/92, corporates began spinning out non-core assets following rationalisation and restructurings. If this trend is replicated it will produce attractive buying opportunities.”