As we enter Q2 of 2023, what did we learn from M&A deal volumes posted in the Freight & Logistics sector? Following a notable softening in the market during Q4 of 2022, the robustness of the sector proved itself again, with the number of transactions between Jan-March rising from the previous quarter. You could argue, one upside of the recent economic turbulence is that M&A deal opportunities have increased. Shipping rates have fallen as vessel capacity isn’t such an issue now consumer spending ability has curtailed. With falling shipping rates, Freight Forwarders revenues and profitability have also declined, resulting in Freight Forwarding buyers feeling more confident in valuing companies again. The market has got to a position we haven’t had for two years, the extraordinary trading performances now replaced with leaner times, and this has made the valuation and negotiation process more straightforward.
The reduction in consumer spending has meant businesses across the supply chain have had to adjust manufacturing output given inventory stockpiling in warehouses remains strong. As a result, global shipping demand has reduced, and container spot rates have significantly declined.
The U-turn in rates from pandemic highs, has filtered down to M&A negotiations, with new considerations considered by buyers & sellers. Where before, owners arguably attempted to capitalise on record trading years, buyers questioned the sustainability of the performance. Now with a softening in the shipping rate market, the gap between buyer and seller valuation expectation has been somewhat reduced. This may have been why deal volumes seen in Q1 were more positive than predictions had forecasted for. Against this backdrop of activity, strategic acquirors will occupy an even larger share of the M&A transaction headlines in the Freight & Logistics industry. This less competitive market may be a result of the slightly diminished private equity action typically seen, because of a more costly lending environment.
See below for some industry deals Connect Corporate Finance highlights during Q1 2023:
DFDS – McBurney Transport Group (MBT)
The end of 2022 saw DFDS announce the McBurney Transport Group acquisition intention, with approval formally granted in February. It brings expansion to its logistics and transport network across the UK and Ireland, whilst accessing routes to Europe & Turkey. The 1.2billion DKK acquisition demonstrates a further intention of DFDS’ strategic plan within the temperature-controlled sector.
Headquartered in Northern Ireland, MBT operates a fleet of 400 trucks and 1.3k trailers, with 955 of those being refrigerated for the movement of temperature-sensitive cargo. DFDS’ increased position in the cold-chain vertical reinforces the wider trend of transport operators wanting to access specialised verticals and commodities. Temperature monitored trailers are a necessary component for the transportation of perishable & pharmaceutical cargoes. The detailed compliance required to run storage associated with cold-chain logistics means there are barriers to enter this market compared to others. As a result, niche verticals often generate greater profit margins, making transport operators in this area a more desirable acquisition.
The temperature-controlled sector has featured heavily for Connect CF during Q1 via a new buy-side client instruction. We have been engaged to help find cold-chain transport operators, in the UK and Benelux region on behalf of a strategic acquirer.
CVC Capital Partners (CVC) – Scan Global Logistics (SGL)
The buoyancy of the freight market sparked considerable private equity interest in 2022. In Q1, data suggested that trade buyers became the main player in Freight M&A, given the complexities in the debt markets. However, a notable PE deal which was announced this quarter was CVC’s intention to acquire a majority position in Danish, Scan Global Logistics (SGL).
With SGL closing 30 acquisitions since 2017 and experiencing an average annual growth in revenue of 33%, CVC’s investment would come at an exciting time for the company, with plans to accelerate the group’s growth to $5billion in annual revenue.
Whilst most PE investors exit after 3-5 years and divest entirely on appointment of a new financial sponsor, incumbent AEA investors will continue as a minority investor which is testament to SGL’s impressive journey to date and scope for future growth.
Janssen Group – Norman Global Logistics (NGL)
Q1’s transactions highlighted the attractiveness of the UK Freight market to European buyers, with the Janssen Group finalising a deal with Norman Global Logistics. Janssen who are headquartered in the Netherlands, will now have a strong position in the UK from five key operating locations. It also gets a sizeable boost to its Asian footprint, as NGL operates 7 locations in the region.
With Janssen’s extensive experience in distribution, warehousing, fulfilment and air & ocean forwarding, the acquisition will enable NGL to leverage Janssen’s wider network and resources to access new markets, whilst providing additional services and support to its existing customers.
This deal marks another development in Janssen’s growth strategy, with backing from Waterland Private Equity, the group has completed five transactions in the past ten months and operates from 15 offices in the Netherlands, Germany, Belgium, Switzerland, Spain and Vietnam.