One of the characteristics of any recession is the effect it has on corporate merger and acquisition (M&A) activity. Harsher economic conditions enable the strong to gain market share, in part through buying weaker rivals. Yet as a just-published PricewaterhouseCoopers survey, 'Intersections: Fourth-quarter 2008 Mergers and Acquisitions Analysis' outlines, the situation regarding M&A activity in the transport and logistics sector is, at present, equivocal.

At 181, the number of M&A deals (valued at over $50m) worldwide in 2008 as a whole was similar to the 192 achieved in 2007 and the 167 in 2006. Indeed, activity actually increased in the final quarter of last year. Where M&A activity did slow was in the US where there were only four takeovers in the fourth quarter compared with the rest of the world, which saw 39. That is hardly surprising and, as the report says, was due to "concerns over the potential US economic output".

Where M&A activity has been strong is in emerging markets such as Brazil, China and Russia, which accounted for 44 transactions in 2008. A good proportion of those represented internal market consolidation, with Brazil, in particular, showing vigorous activity in the fourth quarter of last year. The UK and the Eurozone remained the largest market for M&A developments, as although the number of deals done was similar to that in the Asia Pacific region, the average size of transaction in Europe was larger.

The size of deals appeared to be increasing over the years, with global value hitting $513m in 2008 compared with $421m in 2007. However, what that says about the market is difficult to quantify, as it appears that 2008 activity was hugely skewed towards the fourth quarter. The type of investor is changing, with 'strategic'--that is industry--buyers becoming more important as financial players faded away. Equally the prices paid have fallen, with the price-to earnings ratio falling to 4.2 compared with a previous 8.6.

The type of asset purchased also changed in 2008, with the number of air transport-related deals measured by value falling from 48% in 2006 to just 14% in the fourth quarter of last year. The shipping sector has taken up the slack, with 38% of deals by value in that period being shipping-related. However, that picture is again equivocal, influenced by a strong level of M&A activity in the airline industry around 2006 and developments surrounding German shipping line Hapag-Lloyd AG at the back end of 2008.

The PricewaterhouseCoopers survey is useful but hardly conclusive. The sample on which it is based is not large enough to give a definitive picture over such a short timescale but it is slightly surprising that M&A developments held up so strongly over a period of economic crisis. The report also hints at the potential for sharply increased M&A activity at some point in the near future, driven in part by falling prices of assets.
Transport Intelligence