Page 66 - Linkline Summer 2016

M&A and startups in transport and logistics
Business model convergence and slower market growth drives M&A activity
2015 was a record year for the transport and logistics sector for various reasons: the total value of M&A trans- actions and funding for startups both reached all-time highs. The value of completed M&A transactions rose for the third consecutive year, to a total value of around US$74bn. Additionally, further transactions worth ap- proximately US$100bn were announced, which set M&A activity in the sector at a record level in 2015. There are a few drivers for these trends:
The acquisitions made in the sector increasingly serve the transformation of existing business models. This re- lates to both the acquisition of logistics companies with high-tech/asset-light business models by asset-based companies and vice versa (asset-light logistics special- ists acquiring asset-heavy freight forwarders). Last year, a number of large transactions, some complementing and some transforming the existing business models could be observed:
In addition to this, the plateau effect of globalization makes organic growth ever harder to achieve for logis- tics companies, which in turn drives M&A activity in the sector. World trade consensus forecasts are now signi - cantly lower than several years ago. One reason for this is that the global division of labor, which had risen rap- idly during the last decades, has gradually reached its plateau and therefore cannot be expected to increase inde nitely. This means that in the future, there will be fewer additional growth effects as part of an increas- ing globalization of trade ows. As a consequence, the world-trade-GDP multiplier (the factor by which the world trade grows faster than global GDP) has de- creased from 3.5x in the 1990s, to 1.4x today, where it will remain for a number of years.
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The acquisition of US logistics company Coyote Logistics (high-tech/asset-light business model) by UPS (asset-heavy integrator), worth US$1.8bn. The acquisition of the French forwarder Norbert Dentressangle (asset-heavy) by XPO Logistics (un- til the start of numerous acquisitions last year an asset-light logistics operator), worth US$2.8bn. The acquisition of TOLL Logistics by Japan Post, worth US$5bn, in turn, served to transform the existing business model of the postal service pro- vider into a full-service logistics provider.
Against the backdrop of this new growth consensus, the major companies in the sector are increasingly look- ing for ways to compensate for the slower market dy- namics through inorganic growth. Examples include:
Traditionally, asset-light logistics service providers with relevant IT systems were popular acquisition tar- gets for large logistics providers and freight forwarders. The reverse case now applies and the leaner forwarders increasingly look for their own assets and reliable net- works in order to support and enhance their services.
• The announced acquisition of the shipping line NOL by CMA CGM, worth US$2.4bn.
• The intended acquisition of Norfolk Southern by Canadian Paci c Railway, worth US$27.5bn.
• FedEx’s acquisition of TNT Express, worth US$4.7bn.
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