KPMG sees big increase in logistics M&A
The offer for TNT Express by UPS appears to have sparked interest in the prospect of mergers and acquisitions (M&A) in the logistics sector. The latest to predict a wave of purchases is KPMG.
Each year, the audit and consultancy company produces a survey of M&A activity the in transport and logistics industry. According to this survey, "the first quarter of 2012 saw a big increase in the value of deals announced, with a global value of US$19.7bn. The combined value of completed and announced deals for the quarter stands at US$27.9bn, bigger than in any of the previous four quarters." KMPG also suggests that Europe will be the centre of this trend, with the continent already seeing 87 deals this year, with a combined value of US$4.9bn.
The argument, put forward by KPMG, is that large logistics service providers have a lot of cash on their balance-sheets and will be driven to make purchases. The three main drivers, according to the company, will be the growth of GDP, the "M&A appetite of strategic investors and the investment pressure among financial investors."
KPMG cites the express and mail sector as having seen considerable activity last year, firstly the de-merger of TNT Express from Post NL/TNT Group and secondly the investment by Caisse des Depots & Consignations in La Poste. Apparently, this activity will continue to be driven by growing interest in e-commerce and the related express market.
However, there should be an element of caution attached to this logic. The La Poste deal was one of the occasional examples of the French State investing in itself, whilst the TNT situation has been unwinding for some years. As for e-commerce, whilst FedEx and UPS have successful businesses in the US, in the various European markets the nature of internet shopping provision is really very different. The UK, for example, has an advanced market for both B2C and B2B activities, however in terms of logistics operations it is far from being a source of substantial profits; with much of the market in the hands of Royal Mail.
Steffen Wagner, European Head of Transport Transactions at KPMG also points out that the shipping market is ripe for consolidation. However, the shipping sector is dominated by family interests, whose perspective is perhaps not always focused on shareholder value.
No doubt there are opportunities for mergers and acquisitions in the logistics sector. There certainly appear to be many businesses up for sale, both large and small. However, buying a company is no guarantee of profitable returns. Demand for logistics services continues to grow as world trade continues to grow, in spite of this, the abundant supply of logistics companies illustrates that the supply-side of the sector is highly competitive and seeing a return on investments requires real skill