How much more consolidation can the industry take?

Ti’s own M&A database for the global logistics sector reveals which sectors have been most popular for acquisitive companies over the past twenty five years.

DSV’s recent purchase of Agility, for 23.2 x EBITDA, would seem to highlight a lack of acquisition opportunities at the top end of the global logistics sector.

In recent years, the industry has experienced rapid consolidation, with the leading players – DHL, K+N, DSV, UPS, FedEx and XPO – all undertaking significant acquisition programmes in an attempt to develop scale, generating purchasing power over shipping lines and airlines, and also capitalising on growth opportunities, especially within the e-commerce segment. Over the past 16 years, DHL has completed 164 deals, K+N 72, DSV 62, UPS 36, FedEx 31, whilst XPO has lagged behind at 27. 

Some of the more prominent of these include, XPO’s acquisition of Conway Logistics in the US (for 5.7 x EBITDA) and also Norbert Dentressengle in Europe (for 9.1 x EBITDA), also in 2015. The company also acquired a significant portion of K+N’s UK contract logistics operations in 2019 for €674m.  DSV’s purchase of Panalpina in August 2019 (for 19 x EBITDA) resulted in the creation of the second-largest airfreight forwarder in the world, behind DHL.  The company had already acquired loss making UTi Worldwide in 2016 for $1.35bn and merged with Frans Mas in 2006. DSV also made a failed attempt to buy CEVA logistics in October 2018. K+N recently acquired Apex Logistics in China, reportedly for a multiple of 19.5 EBITDA whilst FedEx announced its €4.4bn purchase of TNT in April 2015. Meanwhile, DHL, which continues to expand its operations, struck a deal with SF Holdings in 2019, whereby the latter will lead a partnership to grow both companies’ combined Chinese operations.

The shipping lines themselves are also keen to expand into this space. CMA CGM acquired CEVA in 2019 for $1.2bn (around 10 x EBTIDA) and Maersk is in the midst of its own growth strategy, albeit taking a different approach of strengthening parts of its business through more targeted acquisitions. This led to Maersk making a number of diverse purchases, such as the acquisition of KGH Customs Services in 2020, for $279m (a multiple of 16.3 x 2019 EBITDA).

GEFCO is also rumoured to be up for sale again, however, with revenues of €3.8bn and an EBITDA of €140.3m, on current valuations this could result in a suitor needing to stump up around €2.8bn (based on a multiple of 20 x EBITDA).  GEFCO is, of course, a very different proposition than Agility, however, with the lack of sizeable options available it may well tempt someone to pay this kind of premium to leap-frog competitors and gain a strong foothold within the European market. 

XPO, which was reportedly keen to sell off its European operations, has now changed its strategy due to high valuation expectations. Instead, the company has opted to split the business into two separate publicly quoted entities.  The XPO name will remain with the US LTL business whilst the 3PL arm has been renamed GXO Logistics.  This split is a direct attempt to increase the company’s value from 9.5 x EBITDA to closer to its competitor’s multiples of between 15 to 20.

Overstated valuations are not, however, a recent phenomenon.  The trend to over-pay started with Deutsche Post’s, reportedly, inflated price paid for Exel in 2005.  At the time, the deal, valued at €3.7bn, represented a multiple of 26.5 times EBITDA and was considered by many in the industry to be too high.

The continued high-level of acquisition activity has resulted in anyone but the largest of companies being priced out of any truly ‘transformative’ deals, even some sovereign wealth funds.  To exacerbate this problem, and also reduce the pool of potential targets further, many mid-sized family firms, especially those in Europe, wish to remain ‘independent’ and instead of joining forces with a larger group are instead investigating floating their companies on local stock exchanges as a way to raise capital to grow their businesses.  At the same time, this approach somewhat protects their succession strategies and family ownership.  Some of the more significant, along with recent, IPO’s include:

  • XPO Logistics (US) – March 2012
  • Clipper Logistics (UK) – May 2014
  • Waberer’s International (Hungary) – June 2017
  • Schneider National (US) – April 2017
  • Mahindra Logistics (India) – November 2017
  • Future Supply Chains (India) – December 2017
  • Tristar Group (Dubai) – April 2021, withdraw from process due to price expectations
  • JD Logistics (China) – May 2021
  • Full Truck Alliance (China) – June 2021

However, taking the public route is not always smooth sailing.  It took Waberer’s International three attempts to successfully launch on the Hungarian Stock Exchange and the energy logistics provider Tristar Group withdraw its Dubai based IPO due to a lack of interest caused by the high valuation placed on the company by its advisors.  The interest in floating businesses, however, remains high with a number of companies recently announcing their intentions to go public.  These include:

  • Saudia Cargo (Saudi Arabia)
  • Colis Prive (France)
  • Trans-o-flex (Germany)

The potential for future blockbuster transformative deals seems small and shrinking, and the ability to target regional, service-based or trade lane specialist LSPs, in the £250m to £1bn revenue range, as part of a ‘build-strategy’, may also be limited, as these are often the family-owned companies that have run the business under a different strategy – family succession.  Suitors would likely need to offer an attractive premium to entice these owners to sell.  Therefore, companies with ambitious growth plans may have to adopt a different approach from traditional acquisition strategies if they want to build scale whilst maximising shareholder value.

Ti’s consultancy practice is well placed to advise on future M&A trends within the global logistics sector having contributed to numerous IPO listings, assisted in developing exit strategies for Private Equity firms, in order to maximise value, and advised on both buy-side and sell-side mandates.  As the period of high valuations for a shrinking group of attractive targets continues, those armed with the best advice will create and capture the most value from their M&A activity.

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Source: Transport Intelligence, June 30, 2021

Author: Transport Intelligence

Ti Consultancy: 

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