Infra deals ‘bright spot’ in transport market

While activity remains subdued in the transportation and logistics sectors, infrastructure mega deals continue to drive deal value PwC report finds.

Infrastructure deals valued at $1 billion or more continue to be the key driver in transportation and logistics merger and acquisition (M&A) activity in the second quarter of 2013, according to a report by financial services firm PriceWaterhouseCoopers (PwC).

While deal volume has seen a decline on a global level, “the bright spot […] is the infrastructure mega deal activity, which is on pace to approximate the levels seen throughout 2012,” PwC’s US transportation and logistics leader Jonathan Kletzel said in a statement announcing the release of the second-quarter 2013 analysis of the industry.

Deal volume was down from 51 transactions in the second quarter of 2012 to 31 transactions in the second quarter this year. However, deal value was slightly up from $14.3 billion to $15.2 billion during the same period, while average deal size rose significantly to $490 million in the second quarter of 2013 compared with $281 million in the same period last year.

From a geographic point of view, Asia was the most active market accounting for “nearly half of all global deals in the second quarter of 2013 in an effort to pursue M&A strategies that consolidate local markets across modes,” according to PwC.

US participation in mega deals was restrained in 2013 in contrast with last year when US entities accounted for one-third of such deals, while European businesses decided to stay on the “sidelines”.

“Given the historical correlation between economic output and sector M&A, it is likely that economic challenges in these regions are affecting deal totals,” wrote Kletzel and Klaus-Dieter Ruske, the firm’s global transportation and logistics leader and co-author of the report.

But despite Europe’s subdued activity, PwC expects both Europe as well as South America to provide some larger infrastructure deals later this year.

“Brazil is expected to auction the Galeao (Rio de Janeiro) and Confins (Belo Horizonte) airports as the country effects improvements ahead of the 2014 World Cup and 2016 Olympics,” according to the report. The South American country has also passed new port regulations in an effort to attract private investment, which could lead to additional concessions.

In Europe, Kletzel and Ruske cite France as a source of activity given its decision to sell a minority stake in national airport operator Aeroports de Paris. They also see activity originating in Greece where a list of assets for sale includes two ports and the state-owned railways organisation.

As for the type of investors responsible for deal activity, PwC found that while strategic investors represented the majority of transportation and logistics deals – 61 percent – in the second quarter, financial investors showed an increased appetite for shipping and port deals. This is “likely due to potential opportunities to improve performance within an over-capacitated mode,” according to PwC.

Kletzel expects that infrastructure deals will continue to drive deal activity in the transportation and logistics sector throughout the second half of 2013.

“However, while certain regions could be sources of ‘headlining’ deals later this year, it is likely that overall activity will remain muted as economic concerns weigh heavily on the minds of potential acquirers,” he said.