Dusseldorf After the takeover hype during the corona pandemic, company acquisitions in the transport industry have collapsed drastically this year. This is the result of a study just published by the consulting and auditing company PwC. The experts cite the economic slowdown and geopolitical uncertainties as reasons, but above all the enormously increased costs for borrowed capital.
“Financial investors in particular were noticeably cautious in the first few months of the year,” says Ingo Bauer, Head of Transport, Logistics and Tourism at PwC Germany. They are generally more dependent on outside capital than strategic investors. Now the increased interest rates made the business difficult.
The figures for the first half of the year show how deep the slump in business with mergers and acquisitions (M&A) is. Between January and June, the global transport and logistics industry announced just 85 deals with a volume of more than 50 million euros. In the same period last year there were 144 such announcements.
At the same time, the total deal volume fell by almost three quarters to $34.3 billion – the lowest level in ten years, as determined by PwC. For comparison: In the last ten years it was an average of 67.5 billion dollars per half year, in the last five years even 75.1 billion.
For the second half of the year, PwC expert André Wortmann expects merger and acquisition activity to remain at a low level. The reasons for this are the continued difficult financing conditions and the general economic environment.
Deutsche Bahn must reckon with lower sales proceeds for Schenker
In Germany, this could hit one company in particular: Deutsche Bahn. Since December 2022, the supervisory board of the state-owned company has had the board of directors and management consultants check whether the sale of the freight forwarding subsidiary DB Schenker is “financially advantageous compared to remaining in the group”, according to an official report.
The Deutsche Bahn wants to use the possible proceeds from the sale – experts assume that there may be income of between 15 and 20 billion euros – to reduce the excessive debt. Without the deal, it could reach the €33 billion mark by the end of 2023.
If the supervisory board and management board decide to part with the only pearl of earnings, a Europe-wide bidding process should start, in which only the price offers count. That’s what top managers in the group report. The sale will only come about if DB Schenker’s foreseeable cash flow income is lower than the purchase offers in the coming years. But given the doldrums in deals, they could now be lower than planned.
>> Read here: “No fixed date”: Interested parties are concerned about the sale of DB Schenker
“This check is ongoing and, as is usual in such processes, needs sufficient time,” says a spokeswoman on request. The logistics industry is an attractive growth market with very good long-term prospects, and DB Schenker is excellently positioned in its business areas. According to the group, the large freight forwarder could possibly fill the gap in attractive takeover targets in the transport and logistics industry that PwC criticized.
But even with the sale of the British DB Group subsidiary Arriva, which was originally in use in 13 European markets with local trains and buses, scheduled for the end of 2024, things could get trickier than expected. It is true that individual national companies have already been sold and, according to reports, two competitors and a financial investor have also made non-binding offers for the rest.
However, since Arriva reported just twelve million euros in operating profit for the past year at the end of March, it is becoming increasingly questionable in view of the high interest on capital whether financial investors in particular will go along with Deutsche Bahn’s price expectations. A planned sales proceeds of 1.2 billion euros are said to be under discussion, to which the group has not commented.
Financial investors are missing
In addition, the trend towards working from home in the main market, Great Britain, has reduced the number of commuters, which is likely to reduce Arriva’s income. At the same time, there are currently high additional costs for the electrification of vehicles and stations, report rail managers.
Other European logistics groups that have brought separation intentions into play could have it easier there. In view of its high deficits, the British post office Royal Mail indicated last year that it was considering selling its parcel subsidiary GLS. Deutsche Post DHL has already entered the race as a prospective buyer.
Both forwarders could soon be sold.
(Photo: dpa)
In the case of current company sales in the transport and logistics sector, on the other hand, financial investors, who previously drove prices up with their bids, are increasingly absent. According to PwC, they were only 38 percent involved in the takeovers in the first half of the year – after a quota of 64 percent in the previous year. “They are therefore focusing on smaller transactions that require less outside capital,” says PwC logistics expert André Wortmann.
At the same time, the slack on the capital market is affecting start-ups involved in logistics, which have benefited from an enormous influx of money in recent years. That’s over for now. They received $12.1 billion from venture capitalists last year, down from $21.4 billion in the record year of 2021.
In 2023, on the other hand, start-ups such as the online supermarket shipping company Zipline from the USA, the Indonesian express mail order company J&T Express or the German electromobility service Jolt Energy had to make do with financial injections totaling 1.8 billion euros.
Logistics deals are becoming significantly smaller
Things were hardly looking any better with the mega deals in the industry. With a takeover value of 5.1 billion dollars, the acquisition of the French forwarding company Bolloré Logistics by the container shipping company CMA CGM made it to the top of the M&A activities in the first half of the year.
In the previous year, deals such as the $52 billion acquisition of the Italian road consortium Atlantia by the Benetton family and the financial investor Blackstone had dominated events. In 2021, the sale of Sydney Airport raised $17.4 billion. With an average transaction value of $404 million, takeovers in the first half of the year were less than half the size of the same period last year.
PwC believes that the shopping sprees of the major container shipping companies, which have reinvested their billions in profits in the past two years and acquired airlines, port terminals, freight forwarders and even rail freight, are largely over. “Large transport and logistics players will now focus on integrating recent acquisitions,” the study says. “In addition, they primarily practice active cost management in order to cope with the crumbling profit margins.”
They should have their hands full with that at the moment. For example, freight rates in overseas traffic have fallen by 86 percent since autumn 2021, according to Drewrys, a market researcher in London. Although prices are still five percent higher than before Corona, diesel prices, wages and other operating costs have risen significantly at the same time.
According to the international airline association IATA, demand in the air freight business is currently a good seven percent below the level of 2019. For truck transport, spot market prices fell by 17.4 percent in May compared to the same period last year. “The risks of default among logistics providers are increasing again,” write the PwC experts. In M&A activity, this promises lucrative bargains from time to time, but hardly any increasing proceeds.
More: Up to 8,400 jobs at risk: Deutsche Bahn is examining cuts in freight transport