Mergers and acquisitions are likely to increase in logistics and transport this year, a study by consultants KPMG suggests.
KPMG looked at the industry globally, and concluded that companies, having cut their cost bases during the recession, were now looking to economies of scale for the next level of operational improvement, which should drive mergers and acquisitions.
EBIT multiples reduced significantly during the crisis, with significantly fewer transactions, it said.
“However, the M&A activity that did take place was characterised by more profitable businesses being acquired (with average EBIT margins of target companies up at 19 per cent in 2009 compared to 11 per cent in 2007). This indicates a flight to quality in a difficult market. During 2010, valuation multiples recovered but still remained well below the 2007 peak. The average EBIT margin for acquired companies fell back to 16 per cent in 2010.”
KPMG analysed global and regional deal volumes and numbers for transport and logistics and general M&A activity. Some 180 closed transport and logistics deals from 2007 to 2010 were selected for the multiple analyses.
“Strategic M&A will once again become part of transport and logistics companies’ agendas as consolidation is a significant opportunity – indeed necessity – for many players in the sector,” said James Stamp, partner in the UK firm’s transport advisory group.
“But 2011 will not be a return to the pre-crisis conditions. The potential for oil-price related shocks will be of particular concern to the transport and logistics sector, along with more general concerns about sovereign default, the strength of the global recovery, and the imminent wave of debt re-financings. To secure successful M&A transactions the combined entity business model will need to be robust, with acquisition debt levels capable of being serviced under heavily sensitised scenarios. ”
KPMG pointed out that the first half of 2011 will see major IPOs of companies in Europe including Hapag-Lloyd and TNT.
“These transactions will set the tone for further EMEA M&A activity in 2011, representing a litmus test for current attractiveness of transport and logistics companies,” it said.