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Value Creation through M&A in Transport and Logistics Sector

Executive Summary

M&A activities and the relevance of PMI in Transport and Logistics Sector

Globally, T&L market conditions are normalizing after COVID which significantly impacts market players…

Effects of T&L market development on the performance of the industry’s top 3
Revenue T&L (B€, financial year)

EBIT T&L (B€, financial year)

  • After the huge upturn in Transport & Logistics during COVID (CAGR +25%), the market shows a downturn (-31% yoy revenues, -35% EBIT) in 2023. This is driven by overcapacity and falling freight rates, as well as rising interest rates and higher operating cost
  • While contract logistics is growing (regarding revenues and EBIT), the freight forwarding business market is heavily under pressure, leading to overall slump in business activities:
    • DHL performing best with only 22% top-line- and 26% bottom-line decrease
    • Kuehne + Nagel with worst performance, showing 37% decline in net turnover and 48% decrease in EBIT
    • DSV, smallest among the top 3, with -36% topline decrease and 30% decline in EBIT
    • However, all the top 3 T&L providers are above pre-COVID levels (revenues and EBIT 2023 compared to 2019)

…and leads to the lowest level of M&A activities since 2018

Significant decrease of worldwide M&A activities in T&L market

Number of deals per region1 (#)

Deal volume per region (B€)

  • Due to the uncertainty of the market outlook, it can be observed that deal activity in 2023 has significantly dropped compared to 2022 and even pre-COVID19 (minus 69 deals)
  • Reviewing the M&A market share based on volume, Europe (40%2) and Asia (22%2) had a drop of 6-7%, whereas North America (34%2) increased its market share by 12%
  • This is also driven by the number of deals, as Asia is facing a slump of -36% and Europe -29% less deals in 2023, whereas North America dropped only by -10%

Globally, the M&A market is on the lowest level in terms of number and volume of deals since 2018. Between 2022-2023, the deal volume has dropped by 60% to € 68Bn, which is even below pre-COVID levels.

Note:

1number including deals with target in the region and buyer either in the region or outside the region

 2market share in % of total market; 3T&L = sea, air, road freight, contract logistics

Analysis of deal volume and average deal value by market: Europe, North America, and Asia

We recognize a tendency towards more strategic medium-sized deals, for which successful integration of activities is key

North America

Europe

Asia

Global

Note:

1number including deals with target in the region and buyer either in the region or outside the region

2Completed and pending deals in 2023;

3yoy = year over year

Detailed view on M&A in the transport & logistics industry in the top 3 continents Europe, North America, and Asia

North America  I Second Largest Market for T&L Mergers (€bn 23)

  • Facing a 37,4% decrease in deal volume
  • Average deal size (highly volatile and dependent on the mega deals): the peak in North America was in 2019/2021 (€bn 1-1,1)
  • A downtrend in deal value in Asia and North America since 2021, due to earlier raise of interest rates in Europe

Europe I The biggest M&A market (€bn 27) (´22 -´23)

  • Recording a 65,7% decrease in deal volume
  • The peak in Europe for average deal size was in 2022 (after COVID19)

Asia I The smallest M&A market for T&L Mergers (€bn 15)

  • Asia is doing worse in deal volume than Europe (-68,5%)
  • Compared to the values of average deal size in Europe and North America, Asia is accounting for almost half of those average deal values over the years

Remain high, indicating that buyers are still willing to take a risk on strategically relevant targets despite the uncertainty surrounding the economic recovery​.

In conclusion, the right integration strategy is crucial to realize the expected synergies and proactively manage the risks

Market outlook 2024

The global Transport & Logistics market remains under pressure in 2024, but more M&A transactions are expected due to the stabilizing financial market

In 2024, a slight upward trend in M&A activities is expected to stabilizing interest rates

DVZ, 01/2024

Freight forwarding air and sea freight likely to stagnate in 2024

DVZ, 12/2023

In 2024, the global freight forwarding market will grow just 0.3%

TI-Insight, 12/2023

The global freight recession will continue in 2024

CNBC, 11/2023

The transport and logistics industry is facing a testing combination of declining demand for freight alongside increasing capacity […] resulting in increased competition

Hellenic Shipping news worldwide, 11/2023

The merger approach determines the challenges and opportunities to be actively addressed and managed during the integration

Opportunities and challenges in Post Merger Integration

Opportunities

icon-Higher-market-power

Higher market power

due to higher market share (better negotiating power with service providers & subcontractors, volume discounts)

icon-Service-offer-enhancement

Service offer enhancement

trade lane extension, expert knowledge, special solutions

icon-Access-to-new-customer-segments

Access to new customer segments

specialization, geographic reach, credibility

Crisis resilience

through diversification and acquisition of own assets

Leveraging scale & cost synergies

(cargo mix, trade lane utilization, consolidation of functions e.g. S, G&A1, HR)

Realise revenue synergies

Cross selling to existing customer base, merging networks

CHALLENGES

Technology integration

complex, data inconsistencies, inefficiencies, long harmonization

Cultural differences and talent retention

dissatisfaction, missing collaboration

Unexpected market down-turn

cash problems due to high liabilities in assets

Financial assumptions vs. actual profitability

Customer retention

losing customers not tolerating service disruptions or changes in quality

Operational disruption

delays, invoicing issues

Note:

1Sales, General & Administration

Archerys best practices for PMI

To determine the most appropriate merger approach regarding integration intensity and risk, it is crucial to fully understand the merger scope

Absolute and relative sizes

Large entities / equal size

Harmonisation
  • Change management is key to overcome cultural differences and secure buy-in and commitment of the teams to the combined entity
  • Middle management involvement is key for harmonisation of products / services (incl. at R&T and R&D stages) and to cope with the scope of the merger
Multidimensional merger
  • Highly structured integration process is key to cope with the size of the merger
  • Top management involvement is key
  • New operating models must be created and scaled to reach target synergies
  • Change management issues are multiplied: mobilization and the buy-in of teams are key

Small entities / different size

Absorption
  • Common sense is generally sufficient for the merger, as new capabilities are absorbed in the existing structure of the larger entity
  • Project mode is not always necessary
  • Little level of synergies is expected
Scale new capabilities
  • Business processes / methodologies must be adapted to leverage and scale the capabilities that have been integrated
  • Team mobilisation is key to identify and leverage target synergies

SIMILAR ACTIVITIES

COMPLEMENTARY ACTIVITIES

Archery’s key success factors for PMI

Based on our experience in Post Merger Integration and Target Operating Models we have developed six convictions

Status Quo
Start with a clear view of current As-Is of both companies, their strengths & weaknesses, and establish a strategic rationale and synergies
Stabilization
Incorporate market segment and country-specific considerations into the TOM design to mitigate the risk of destabilization
80/20 principle
Apply the 80/20 principle - necessary for high-level target operating model design
Balance
Take care of the balance and the consistency of envisaged changes on organization and processes on the one hand, and technology on the other hand
People
Strive for balance between level of ambition and constraints (readiness for change / acceptability, resources and competences) when building a joint TOM
Organization
Prioritize a joint mode of operation during the implementation whenever possible and conduct regular iterative loops with top management to secure convergence

Archery product portfolio along the M&A value chain

Archery has developed a tailored set of nine services covering the whole M&A value chain to effectively support our customers growth ambitions

Target Screening

Target screening is the first step in the M&A process and determines the strategically optimal target selection

  • 1. Strategic framing and associated selection / prioritization criteria
  • 2. Identification of relevant targets and prioritization of potential acquisitions
  • 3. Deep dive analysis of prioritized target companies to ensure strategic fit
M&A Transaction Support

Ensures that expected synergies can be reached with the selected target and that the right integration approach is selected

  • 4. Perform strategic, operational or IT due diligence
  • 5. Support creation or challenge business plan
  • 6. Assess scope of the PMI to determine the level of intensity & risk and suggest adequate PMI approach
Post Merger Integration

Conduct PMI activities at the right time and with the right intensity to ensure the integration success

  • 7. Perform strategic, operational or IT due diligence
  • 8. Support creation or challenge business plan
  • 9. Assess scope of the PMI to determine the level of intensity & risk and suggest adequate PMI approach

Our Experts

Guillaume Hue

Partner

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Johannes Schilling

Partner and Managing Director Germany

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T&L deal activity slowed down in 2023, however showing high multiples indicating mainly strategic acquisitions and higher pressure on successful PMI integrations

Executive Summary

  • After the upturn of the Transport & Logistics market during COVID (CAGR +25%), the market shows a downturn (-31% yoy) in 2023. This is driven by overcapacity and falling freight rates, while rising interest rates and higher operating cost reinforce the effect​
  • In 2023, the M&A market reached an all time low in terms of transactions and deal ​volume since 2018. From 22’ to 23’, the deal volume dropped by 60% even below ​pre-COVID levels to € 68 Bn​
  • By contrast, revenue multiples are still on a high level, which signals buyers’ willingness to take risk for strategically relevant targets, despite uncertainty regarding ​the economic recovery​
  • As to our analysis, the global Transport & Logistics market will stay under pressure in ​2024, but more M&A transactions can be expected due to the stabilizing financial market ​
  • Due to the market situation, M&A activity will continue to be driven by financial investors ​or well positioned T&L companies selectively searching for strategic opportunities​
  • Due to increased risk, driven by the transaction price and the negative market trend, selecting the right target and the right Post Merger Integration Strategy (PMI) is crucial to realize the expected synergies and reduce risks of operational disruption as well as customer and talent retention