European transport and logistics sector set for consolidation?

The transport and logistics sector is poised for a wave of takeovers in 2012, with Europe set to be at the centre of the activity, according to an analysis by advisory firm KPMG.

2011 was a rather subdued year for the sector in terms of M&A activity, but the combined value of completed and announced deals for the first quarter of 2012 stands at £17.4bn, which is more than in any of the previous four quarters.

Steffen Wagner, European head of transport transactions at KPMG, said this represented a "promising start" to the year.

He said: "Many companies, particularly in the logistics segment, are sitting on full coffers and are ready for increased strategic acquisitions.

"Whether or not the market will rally will depend mainly on three factors: GDP development and the general economic outlook, the M&A appetite of strategic investors and the investment pressure among financial investors.

"The overall market situation for shipping companies remains difficult: The sector is struggling with overcapacities, declining charter rates and many companies operate below break even.

"We expect further need for consolidation in this highly fragmented shipping industry and thus a growing numbers of transaction but with small average deal sizes."

Last year, Europe was the only region globally with growing transaction volumes, while North America and Asia saw a significant drop in activity. Wagner believes that Europe will take centre stage once again this year, with opportunities for investors in shipping, logistics and the infrastructure market.

He said: "The logistics market is highly fragmented as well, especially in Europe. Private equity investors looking to invest in niche markets and the further need for consolidation will be the main drivers of M&A activity in this sector. Opportunities will be in temperature-sensitive transport and food logistics, pharmaceutical and chemical logistics and the transport of hazardous products."

"The picture in the infrastructure market is a different one. Investors in this segment have been traditionally looking for safe investment opportunities and will continue to do so. Margins are usually low but cashflows are stable thus infrastructure will remain an interesting M&A market for pension funds.

"Further need for privatisation will likely drive M&A activity in the future with some large cap transactions already in the pipeline."

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