Firms in the transportation and logistics industry indulged in calibrated deal-making during Q3 2009, with strengthening balance sheets remaining a key objective. While the sector has been recovering slowly, it is expected that an improving global economy will soon lead to renewed confidence among its investors, which in turn will cause an upswing in majority acquisitions.
The transportation and logistics industry, which experienced a steep decline in volumes in the first half of the year, is showing some signs of recovery. The International Air Transport Association has said that load factors in cargo have returned to pre-crisis levels, and the WTO already reported that merchandise trade improved by nearly 8% in Q2 2009 over the previous quarter. The European Freight Forwarding Index reported a broad-based recovery in September, based on a survey of industry respondents. Most firms in the transportation and logistics industry took vigorous measures to counter the downturn, ranging from a variety of cost-cutting strategies to raising productivity. With the recession ending and signs of an enduring recovery becoming stronger, firms are expected to use strategic deals to strengthen their competitive advantage.
In Q3 2009, the total volume of transactions in the transportation and logistics industry registered a decline of nearly 10% compared to the previous quarter. However, the total deal value increased sharply; the average value also rose considerably, to $1,207m. Although the presence of a $57 billion acquisition of Wadan Yards by Nordic Yards skewed the average deal size upwards, the appetite for big transactions is returning, with bankers becoming increasingly comfortable in negotiating large contracts: there were 28 deals valued at more than $100m during the quarter.
The majority of the deals were acquisitions, suggesting that firms are sensing a stable recovery around the corner. In fact, five of the top 10 deals were takeovers. Initial public offerings (IPOs) increased marginally over the previous quarter. Four out of the top five IPOs originated in the US, the most notable among them being AMR Corporation's and RailAmerica's, which raised $400m and $300m, respectively. Firms sought cash infusions through debt issues or public offerings, mainly to strengthen their balance sheets.
Road and shipping accounted for a major share of the transactions in Q3 2009, with the road sector demonstrating recovery and the passenger transportation segment getting the attention of investors. However, attractive valuations and the distressed state of many firms did not result in any aggressive deal-making, as overcapacity concerns weighed heavily on the strategic thinking of companies. The rail sector saw very few deals in the quarter, with the most notable among them being RailAmerica's $300m IPO.
In Q3, the banking sector improved compared to the previous quarter, and credit markets began to function well once again. While other sectors witnessed significant deal activity during the period, however, the transport and logistics industry lagged behind. Nevertheless, once the pace of economic recovery picks up and its stability becomes more certain, it is likely that the industry will receive more attention from investors. When this occurs, minority acquisitions will probably give way to majority takeovers as companies become much clearer about their plans and try to position themselves to take advantage of a rebounding global economy.