Logistics in 2015: A Year of Acquisitions

This year has officially ranked as the biggest ever for global M&A activity, with an expected US$4.7 trillion in deals to be agreed by the close of the year.

Logistics was no exception to this trend, with no fewer than eight major deals announced during the year, including FedEx’s ongoing acquisition of TNT, XPO’s transformation through the takeovers of Norbert Dentressangle and Con-Way, and Japan Post’s purchase of Toll.

A low-growth environment in which many corporations have been sitting on large cash piles, and those which haven’t have been able to access cheap debt, has created conditions amenable to a period of consolidation; this as suggested by Ti during December last year.

Furthermore, exchange rates represented a significant factor in encouraging such activity, with the CEO of XPO Logistics noting that the value of the Euro versus the US Dollar added a compelling incentive for his company’s acquisition of Norbert Dentressangle.

XPO Logistics was the most dramatic story throughout this process, with the company’s acquisitions propelling it into the top echelons of the global logistics market. From 2014 revenues of US$2.4bn, the company is expected to close 2015 with a total approaching $15bn (incorporating the incomes of the former Norbert Dentressangle and Con-Way businesses).

Another acquisition that formed part of a transformational change was Japan Post’s move to takeover Australia’s Toll Group. Japan Post went public in the biggest IPO of 2015, and of vital importance to this process was the company’s deal to buy out Toll Group, and therefore gain a significant array of logistics businesses throughout South East Asia. By becoming a logistics business, Japan Post is following the tried and tested model of other national post offices; whether it will be successful in its efforts remains to be seen. The company currently derives the bulk of its income from its insurance and banking operations which subsidise the Postal unit. Eventually though Japan Post Holding is scheduled to sell these off entirely, making the integration of Toll Group even more significant for the future of Japan Post.

That the news of FedEx’s successful bid for TNT comes below these two stories illustrates just how big a year it has been for consolidation in the logistics industry. With the two companies clearing the EU’s Competition Commission, a hurdle UPS was unable to overcome in 2012, the success of this deal now seems assured. An expected close in 2016 will reduce the number of global express ‘Integrators’ to three, with the aforementioned FedEx and UPS, along with DHL Express, set to control 85% of the market for time-definite international express and parcel services.

Will we continue to see M&A in 2016? There are many interesting trends to factor into any predictions. Firstly, oil prices look set to remain low, whilst the container shipping industry will still suffer from overcapacity. Something else to take into account is the US Federal Reserve’s decision to hike interest rates; the implications of which are covered in detail by this logistics briefing from Ti Economist David Buckby.

One thing is for sure; there remains much work to be done on the acquisitions agreed in 2015. Many are yet to be fully closed, and in all cases the integration process will be fascinating to observe.