Expect a busy year in mid-market logistics M&A

By May 2, 2018Market Moves

As reported last month, 2018 looks set to be a busy year for mergers and acquisitions (M&A) in the mid-market logistics sector.

Global research shows that, the volume of deals in the logistics sector increased by 18% in 2017, while the total value of deals rose by 5%. Similarly, in the UK and Europe, the volume of deals increased by 16% and total deal value by 8%.

Further analysis reveals that the big difference in 2017 was the return of the mid-market deal – transactions valued at USD$75m or less. While 2015 and 2016 were characterised by a number of ‘megadeals’ around the world, 2017 saw a re-emergence of M&A transactions in the mid-market arena, a trend likely to continue in 2018.

Midmarket M&A activity in the logistics sector is being driven by growth in certain subsectors, such as e-fulfilment and courier ‘final mile’ delivery. Logistics companies want to get a solid stake in these vibrant segments of the market. A second important factor is the desire for diversification, so that businesses have more services to offer to their customers. In addition, cost savings and synergies as logistics businesses respond to the competitive environment in which they are operating is seen as key fundamental driver of activity.

Momentum for M&A in the forwarding space is expected to build in the coming year, according to a report from Transportation Intelligence, which said the top 10 forwarding firms accounted for 43.5 percent of the industries US$141 billion global revenue in 2016, adding that there was still more room for consolidation.

Southeast Asian transportation sector is expected to continue to shine as interest in logistics technology companies accelerates and last mile continues. The sector coming off the back of a solid 2017, which saw deal values up by more than sevenfold at US$25.2 billion across 25 deals when compared to that of 2016.

Beyond Southeast Asia, Chinese investment is making itself felt in emerging markets like Pakistan, Kenya and in the Middle East with a number of new deals announced in Oman (in particularly around the port town of Duqm). Greater China’s thirst for assets was seen most clearly seen in its acquisition of Southeast Asian transportation companies including GLP and CWT – and is largely attributed to Chinese companies’ chase for overseas assets within the Belt & Road (B&R) initiative.

In the GCC, the logistics service provider industry remains highly fragmented and is on the brink of consolidation with larger private players looking for market dominance. The influx of integrated service providers is a major trend in the market, with companies increasingly focusing on improving their core competencies, while increased competition has necessitated outsourcing to 3PL/4PL players for the companies to maintain their market position.

Going forward, growth in the sector is imminent as the regional governments are actively taking several initiatives such as setting up of free trade zones, providing incentives for air and sea transports, increase spending for logistics infrastructure and allowing private investment through PPPs.

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