The Barclays Logistics Confidence Index recently suggested that this year’s UK score of (47.3) was the second lowest since reports began in 2012, positioned only just above the result in 2020’s pandemic review. The score indicates a level of caution amongst strategic buyers and private equity investors, given increased lending rates and the normalisation of carrier capacity.
As always there is diverging market factors, with an uptick seen in Q3 Logistics M&A activity compared with Q2 despite the volatile period. Operators are still seeking greater market share and complimentary services in pursuit of their wider growth objectives. As the Barclays report identified, whilst M&A appetite was down on the previous two years, 40% of logistics leaders still had confidence in the M&A market, stipulating that they would look at acquisitions in the next 12 months, to access new markets and service lines.
These trends mean deals are still happening, with activity seen at the upper, middle and smaller end of the logistics market. SME activity has shown strong resilience as valuations have moderated in line with market conditions which we now face.
Transactions in the time critical sector
Where bigger ticket deals had declined earlier in the year, Q3 brought a resurgence in activity for the larger end of the market. In August, H.I.G Capital signed a definitive agreement to acquire Ascent Global Logistics, a leading specialist in time-critical logistics. Offering full transport solutions across air expedited logistics, truck brokerage and freight forwarding. The transaction demonstrated renewed private equity interest alongside incumbent PE partner, Elliott Investment Management L.P. who has agreed to maintain a minority position, reinforcing the optimism in this lucrative area of supply chain.
Another large deal in the time-critical space was UPS’ acquisition of MNX Global Logistics in September. A strategic move to expand its capabilities in healthcare, the addition will allow the company to expand its division of UPS Express Critical to service its clients time-sensitive requirements. MNX’s capabilities will provide UPS with more access to niche cargo verticals, benefitting from expertise in radiopharmaceuticals and temperature-controlled services which will compliment UPS Healthcare and its clinical trial logistics subsidiary, Marken.
Forward Air’s acquisition of Omni Logistics also featured as a surprising deal in Q3, focussing on another area of the supply chain, the expedited LTL market. The transaction completed at $150million in cash plus stock holdings, as part of Forward Air’s strategy to build its capabilities in the expedited LTL sector. The investment is expected to create a market-leader, focussed on providing customers with multimodal solutions for complex, high-service, and high-value freight needs.
These deals reflect interest in the US market, as the biggest economy globally and according to the Mordor Intelligence report, the US market size is estimated at 1.27trillion USD and expected to grow at a CAGR of 4.07% during next 6 years.
Italy – an attractive market
Italy continued to be an attractive market in Q3, with Dascher announcing its joint venture with Fercam in August, as part of plans to strengthen groupage and contract logistics in the region. Plans are for Fercam to detach its groupage and contract logistics divisions and integrate into the newly formed company by the end of the year. Originating from a longstanding 20-year partnership between both companies, meaning operations were already synced in terms of groupage handling. With limited presence in Italy, the joint venture is set to round off Dascher’s European network by gaining access to Fercam’s 43 locations and strong geographical coverage in Italy.
Earlier in the quarter, Canadian headquartered Delmar International's acquisition of Alisped was another interesting Italian deal. Operating for more than five decades, Alisped was one of the few remaining mid-sized forwarders left in the local market, specialising in ocean, air & road transport. With offices and warehouse facilities in Milan, Bologna, Civitanova Marche, Modena, Turin, Vicenza and Venice, the deal is expected to significantly strengthen Delmar’s foothold in Italy. As is common in many forwarding transactions, Delmar utilised Alisped as an agent for several years prior to the transaction.
Interest in niche verticals
As forwarders continue to manage declining rates and increased overheads, the allure of handling higher margin commodities is more of a strategic priority than ever. Niche specialisms in cargo transport are a strategy many look towards, given the increased margin associated with certain specialist fields. The intricacies of handling specialised cargoes alongside the legalities that underpin the movements of these goods, ensures margin erosion is less severe in a rate retracting market.
In Q3 private equity backed Global Transport Solutions acquired Ship Spares Logistics, both operating in the maritime sector, the combination is expected to broaden GTS’ final mile capability in marine spare parts, offering a comprehensive and integrated service to its combined client bases.
Another specialist deal was Seafrigo Group’s acquisition of UK based, Perishable Movements Limited (PML). As cold chain specialists, the acquisition is part of a strategic move for Seafrigo to secure further control over their entire cold supply chain, without a reliance on third party partners. With three depots in the UK, the acquisition is expected to consolidate Seafrigo’s cold-chain network both in the UK and globally.
Q4 Outlook
The pandemic boom in the shipping market has been restrained by higher energy prices associated with global conflicts and reduced consumer demand. As we head into Q4 this year we will begin to see large reductions in fourth quarter earnings because of the above factors, spot rates have reduced which is a repercussion of reduced shipping demand. It will be interesting to see who looks to fill their earnings void, by making investments in M&A. In a recent Barclays poll, 71% of UK logistics business owners reported a likely capital expenditure in the next 12 months, to meet required growth plans. The optics of acquisition revenue to a financial statement might be an easier solution, irrespective of the strategic motives. It will be very interesting to monitor the M&A deals happening in the market over the next 3-6 months.