In recent years, the international freight forwarding market has demonstrated significant consolidation, with shippers and carriers experiencing rapid expansion. This reached its peak in Q4 2021, as the leading global forwarders sought to capitalise on record earnings and a decade of low borrowing costs to fund their acquisitive growth plans. The result was a high volume of deal completions amongst the leading global forwarders & container lines, with eight transactions valued above $1billion USD that year.
With record deal values, came a record number of M&A transactions, as the lower-to-mid market followed a similar path. As we now review 2022 and the notable deals and trends seen within our industry network, how did acquisition numbers compare across the supply chain? Somewhat inevitably - numbers were down, but statistics largely kept pace with pre-pandemic levels for overall deals.
Private Equity Interest
The buoyancy of the logistics M&A market, sparked by surging revenues many forwarders were generating due to shipping rate inflation during 2021, was not unnoticed amongst private equity investors. This was notable in January when we saw several acquisitions from private equity, including US firm LittleJohn & Co, Nordic’s Axcel and Netherlands based Waterland.
The acquisition of Magnate Worldwide saw Littlejohn & Co build on its experience via seven other transport businesses within its portfolio. Operating two premier logistics brands, the partnership with Magnate Worldwide allowed Littlejohn & Co to access other areas of the supply chain with a 3PL offering and specialist service expertise.
January also saw transactions from Axcel, completing on both DANX and Carousel Logistics, to merge two operators and take advantage of their combined presence across the UK, Nordic and Baltic regions to create a strong pan-European in-night logistics provider.
We also saw Waterland Private Equity complete a majority investment in full-service logistics provider, Duvenbeck Group. Waterland’s investment was part of plans to progress the company’s internationalisation strategy, development of core competencies and expansion into new customer segments, whilst continuing to work with shareholder Thomas Duvenbeck.
Private equity continued to play a role in overall deal activity through to Q2, with accountancy firm BDO reporting: more than half of the deals happening in UK logistics industry were private equity backed endeavours. This highlights how many private investors wished to capitalise on an industry that has seen substantial growth in recent years. For instance, Customs Support Group’s backing by Castik Capital, enabled the group to strengthen its UK & EU foothold through acquisitions such as Osborn Customs Services and KSI Portlink.
The activity continued through to the remaining half of 2022, BGF investors backed ITD Global in a £15million investment, whilst the European based Waterland PE continued to distribute investment into the sector, through a merger between VCK and Janssen. By financing a merger or completing an acquisition of two Logistics companies at once, private equity firms are able to procure multiple services streams which simultaneously complement one another and improve the individual entities value proposition as a combined entity.
Private equity interest in global forwarding and logistics has continued into 2023 with a recent announcement from CVC Capital Partners that it had taken a majority position in Scan Global Logistics (SGL). The transaction will see both the existing partner (AEA) and management co-invest with CVC to continue it’s ambitious growth strategy of reaching $5bn revenue by 2025. John Cozzi, Partner at AEA, stated ‘we’ve tremendously enjoyed the partnership with the SGL team since 2016, supporting them in their transformative quest to become a global network logistics provider and are very pleased to remain a significant minority shareholder to participate in the company’s future growth.’
Freight forwarding is a fragmented market, with the Top 20 global forwarders holding an estimated market share of 30-40% and the larger remaining part of the market represented by more regional, independent forwarders companies. The fragmented sector and non-contractual, traditional service led, operating model, allows for strong competition. There’s no surprise that continued consolidation occurs, with shippers and carriers seeking to access new service offerings, to distinguish themselves and gain ground on the market.
Perhaps one of the most obvious being in Q2, the French shipping line, CMA CGM, secured an equity holding in Air France-KLM as part of a strategic partnership. Synergies include Air France-KLM’s expertise in air cargo, whilst benefitting from CMA CGM’s foothold across the supply chain, where joint air freight capacity will enable both companies to deliver enhanced solutions for their customers requirements. CMA CGM’s move to a vertical integration strategy was also evident when the group acquired GEFCO, a European leader in automotive logistics and forwarding. With the integration to its subsidiary CEVA Logistics, the acquisition strengthens the services offered by CMA CGM, as well as increases the group’s footprint in Europe.
Another sizeable transaction involving vertical consolidation was A.P. Moller – Maersk’s completion of Honk Kong based, LF Logistics. As a contract logistics company, with varied capabilities across omnichannel fulfilment, e-commerce, and inland transport, the transaction expanded Maersk’s activity in the Asia-Pacific region. It also diversified services away from a previously focussed ocean liner activity to a more omnichannel fulfilment capability towards the fast-growing consumer markets in Asia.
As vertical consolidation in Logistics continues to be explored globally, it instigates a line of questioning towards how smaller forwarding agents are expected to compete amongst the ongoing scaling, diversifying and acquiring happening within the sector. Whilst they lack the opportunity to make large investments, does that matter if their service remains unscathed within their local markets?
Another interesting theme to us in 2022, was the increasing interest in Africa as an emerging market for freight forwarding and logistics. This was most notable in the transactions completed by CEVA Logistics in July, where the group acquired Spedag Interfreight, an African international freight forwarder employing c400 people, the target was said to be one of the most competent and reliable logistics providers in East Africa.
Other notable transactions in this emerging continent included MSC’s acquisition of Bolloré Africa Logistics, completed in line with the group’s long-term strategy to invest in African supply chains and infrastructure to support the needs of its clients. The introduction of Bolloré Africa to the group marked the start of MSC’s activity in the region, with plans to build infrastructure that will expand to ships, shipyards, terminals, logistics, storage, road and rail networks.
The long-term goal of this is to enhance trade across the continent by developing additional lanes and routes to the rest of the world.
M&A slowdown – result of declining freight rates?
On analysis of the annual data for freight forwarding transactions, there was a substantial decline in completed deals towards the end of 2022, when comparing Q4 against Q3, which highlights the instability of shipping rates and geopolitical landscapes.
Having collated data from press releases in our network, we reviewed 19 deals in Q4 which was sizeably lower than the 32 completed in Q3 2022. This raises the question as to whether the M&A slowdown was a result of the sharp decrease in spot rates, which many shippers had to adjust to during the end of 2022. Hot off the back of the inflated landscape, when spot rates reached new heights following the pandemic, the drop correlated with lower deal volumes for the freight sector.
In September, spot rates from the Fast East plummeted by 45% in 20 days, the biggest decline since 2012, with carriers experiencing a “hard landing” on spot rates, this all happened in tandem with the rising political tensions and interest rate and EU energy inflation. The bleak economic outlook stifled M&A activity and the reduced optimism in the global environment impacted the financing of M&A deals understandably so.
Whilst slightly gloomy to recap on the latter half of 2022, the outlook for 2023 remains positive, certainly as we look towards the mid-point of the year. We have seen several transactions completed in January across the supply chain. Interestingly, deals done during a downturn can frequently be the most successful, because challenging conditions create opportunity for buyers to attain better returns. DSV’s CEO, Jens Bjørn Andersen, during a recent press release, stated that the group will look to remain decisive amongst declining freight volumes, with the price of acquisitions set to follow suit, DSV may take advantage of this.
One would presume that the normalisation of shipping rates will act as a recalibration for company valuations, with slightly less buy-side competition and new assets coming to market for sale, this should be a prime time to consider engaging in the right M&A project as part of the strategic, long-term growth strategy.