Q1 2024 Freight-View

Freight-View

At the end of 2023, market conditions were impacted by inflated rates and congested shipping routes as a knock-on effect of the Red-Sea issues. Whilst it seems that tensions aren’t easing in the Red Sea, container rates have showed signs of softening towards the end of Q1, with many forwarders adjusting to the new round-Africa service. Has this impacted M&A deal activity during Q1 this year?

Resurgence of Big-Ticket deals

On review of last year, whilst there was an uptick in M&A activity among supply chain operators, there was a lower volume of ‘big ticket’ deals in the market. The sustained focus on mid-market deals indicated a cautious and more strategic approach from buyers, driven by higher cost of capital and lingering uncertainties regarding future earnings and valuations.

Q1 has already demonstrated a shift in this trend where we can expect to see some exciting large-cap deal announcements this year. Developments included the bidding war between CMA CGM and GXO for the acquisition of contract logistics specialist, Wincanton, headquartered in the UK. CMA’s initial interest showed the group’s continued commitment to vertical integration, with the deal expected to provide additional service capabilities to the existing forwarding division Ceva Logistics. Adjacent service acquisitions are becoming more common in logistics, due to the synergies available when capturing more of the supply chain, providing end-to-end solutions for customers seems to be a model carriers and global logistics companies are pursuing over recent years.

In early March, CMA withdrew from the bidding war, after its latest offer was rejected. GXO presented a stronger offer of ￡764 million, marking a 26% increase on CMA’s highest bid. This latest development is anticipated to significantly strengthen GXO's position in the UK contract logistics market, accelerating to 30% market share, and surpassing DHL’s ranking. The two offers had different motivations and synergy prospects, as GXO sought to expand its market share in contract logistics. The developments surrounding Wincanton's sale also signalled encouraging signs of renewed interest in the UK market. Over the past few years, there had been a noticeable decline in overseas appetite post-Brexit, due to uncertainties surrounding trade disruptions and regulatory changes.

We also saw private equity interest in the UK, in the upper-mid range of the market, through H.I.G. Capital’s take private transaction of DX Group plc. As a market-leader in UK final mile delivery, the acquisition completed at an aggregate consideration of ￡307million, with H.I.G’s investment expected to accelerate DX Group’s expansion plans.

The sectors largest live deal saw DHL pull out of the bidding for DB Schenker to concentrate on strategic bolt-on acquisitions. The company projected its free cash flow to reach approximately €2.75 billion ($3 billion) in 2024, which includes a €250 million budget designated for M&A. This decision effectively removes DHL from contention for the c.€15 billion investment required to acquire Schenker. Current trade interest falls on DSV, as well as appetite from Saudi Arabian logistics company Bahri. Private equity appetite includes joint ventures from Carlyle and CVC, as well as Advent and Bain completing a joint bid. We eagerly anticipate announcements regarding this significant consolidation expected to take place by years end.

North America consolidation ?

The start of the year brought activity in the North American domestic market, Magnate Worldwide’s acquisition of Quality Air Forwarding, expanding its service capability in mission critical solutions. Backed by Littlejohn & Co, the deal expands Magnate’s footprint in the Midwest, which has been identified as a key growth area for the industrial manufacturing sector.

We also saw leading customs brokerage & logistics provider, Alba Wheels Up, complete on its acquisition of John A. Steer Co. The strategic move is expected to accelerate Alba’s position as a prominent US customs broker, whilst for Steer the transaction will enable the organisation to accelerate technology implementation.

Metro Supply Chain extended its presence in the Canadian market, by acquiring 3PL company SCI Group this quarter. The merged entity is anticipated to bolster Metro's position as a market-leader in contract logistics segment in Canada. This transaction marks the group's 10th since receiving private equity backing from CDPQ in 2018.

Tough market conditions for Hauliers

A theme which has continued from 2023, is rise in asset purchases of insolvent haulage companies. According to a report conducted by Price Bailey, 463 haulage businesses went bust over the course of 2023, due to tougher trading conditions. In an industry characterised by low margins, operators must work incredibly hard to make a reasonable return during recessionary times of lower consumer demand and increasing overheads.

Noteworthy companies entering insolvency included TWT Logistics, Youngs Transportation and Gwynedd Shipping , with the Loadstar highlighting at least 90% of the UK hauliers that failed this year were independently or family owned. Many of these businesses have been longstanding operators however as the Road Haulage Association has highlighted, hauliers operated on “paper thin” margins of c.2%, so the room for decline is drastically small.

The downturn in trading conditions prompted an increase in distressed M&A activity, as demonstrated by South Wales based Monex Group's acquiring Bridgetime Transport's assets. Despite operating for over two decades, Bridgetime encountered difficulties in maintaining volumes and ultimately revenue decline as a result of the challenging market conditions. Whilst there were efforts to reduce overheads by downsizing its workforce in January, the company couldn’t be saved which led to Monex stepping in. Monex confirmed the transaction, would enable some of the existing workforce to be retained, a silver lining in such unfortunate events.

Distressed activity across other areas of the supply chain included reports that Yodel had been saved from administration. The final mile delivery operator was acquired by YDLGP, a newly formed company backed by a consortium of investors including Solano Partners, as well as the leadership team behind Shift, a rapidly growing UK-based logistics platform. Generating ￡561million in revenue, Yodel will join Shift to form a ?‘super scale’ logistics platform for final mile delivery.

Continued activity in specialised verticals

As logistics companies grapple rate decline and rising overheads, many turn to niche specialties, recognising the enhanced margins that come with complexed shipments. The more reliable necessity verticals, such as food and pharmaceutical, aren’t exposed to the cyclical variation that other markets might see in recessionary periods. The complexities involved in handling certain cargoes, coupled with legal regulations governing their movement, help to mitigate a company’s margin erosion when a market is supressed. For example, The Walden Group, a market-leader in European healthcare logistics, announced plans to acquire Italian operators, XCM Healthcare & Unitex. The combined entities cover a broad spectrum of the supply chain from forwarding to final mile delivery. The acquisitions are set to provide a market entrance into Italy, a key growth market for Walden given it’s one of the leading European pharmaceutical manufacturing markets, with a high focus on biotechnology.

There was further activity from Life Couriers, an international logistics group focussed on the Life Science and Healthcare sectors. Q1 saw them acquire French headquartered, RLG, creating a European leader in radiopharmaceuticals transportation.

The LC group also expanded its capabilities in the US through the acquisition of Optimize Courier, a key player in the life sciences and emergency logistics sector.

Conclusion

It will be intriguing to observe if the above trends continue into Q2. Can we anticipate a number of sizable deal announcements in freight sector? We certainly think momentum is growing and M&A activity will continue to pick up pace quarter over quarter during 2024.