M&A activity in the logistics sector is heating up. How this round of consolidation will reshape the business is difficult to say but there is private sector money looking for investments and transportation intermediaries are tempting targets. The logistics industry is facing a surge in merger and acquisition activity. FedEx offers one example. In December the company announced that it had signed an agreement to acquire GENCO, a large third party logistics (3PL) in North America that offers a comprehensive portfolio of supply chain services. GENCO processes more than 600 million returned items annually. The company is regarded a pioneer and market leader in reverse logistics since it provides triage, test and repair, remarketing and product liquidation solutions. Its services span the technology, consumer, industrial, retail, and healthcare markets. The attraction for FedEx was the expertise GENCO brings that will expand existing FedEx service offerings in the evolving retail and e-commerce markets. “The acquisition of GENCO will transform our global portfolio through the addition of new best in class supply chain management services,” says Frederick W. Smith, Chairman and CEO of FedEx Corp. “As e-commerce continues to grow, customers of both companies will reap the benefits from the broadened capabilities and powerful new services.” In November, North American 3PL provider Transplace announced that it had acquired 3PL provider Logistics Management Solutions (LMS). According to a press release, the acquisition enables Transplace customers to “gain competitive advantages through optimal transportation management.” The company’s services and capabilities include transportation management services, intermodal, brokerage and SaaS transportation management (TMS) solutions as well as supply chain network planning and design, transportation procurement and consulting services. LMS brings to Transplace its expertise in the chemical and industrial manufacturing sectors. “Acquiring LMS further supports our commitment and strategic plan to grow Transplace and build a competitive advantage for our company and our customers,” says Transplace CEO Tom Sanderson. “Bringing the LMS team on board allows Transplace to offer more services to its existing customers and to serve an entirely new set of customers, as well as continue to expand our presence in key verticals, such as the chemical industry.” Shaking up the industry on the international scene, Kintetsu World Express of Japan announced in February that it was acquiring air and sea freight forwarder APL Logistics from Singapore-based Neptune Orient Lines (NOL). The deal is worth a whopping $1.2 billion. Regulators are expected to decide whether or not the deal will go through in June. If approved, the acquisition will expand Kintetsu’s reach beyond Japan into North and South America. According to a statement by NOL, the move is the result of Neptune Orient deciding to dispose of its logistics business and focus on improving its core liner shipping business. APL focuses mostly on forwarding high-tech products, such as computers, semiconductors, mobile-phone parts and automobile components. More than a third of its business is based in intra-Japan shipments. About the same time that the Kintetsu-APL deal was announced, Japan Post Holdings Co. Ltd. reported its decision to pay $5.1 billion for of Australian firm Toll Holdings Ltd. If approved, this deal would be the world’s largest takeover bid in the logistics sector since the 2006 purchase of Excel by DHL for $5.5 billion. The deal would allow Toll to gain a logistics presence in 55 countries. Toll CEO Brian Kruger sees the acquisition as “a reflection of the strategic value of our business and our strong footprint throughout the Asia Pacific region.” He contends that it will deliver great opportunities for not only his staff, but customers and strategic partners. “The great Toll culture built on safety and operational excellence will work well alongside Japan Post’s established values,” he says. Toru Takahashi, president and CEO of Japan Post, adds that the acquisition will be a transformational transaction for both companies. He expects it will lead them to becoming a leading global player. The word on the street is that the move will make Japan Post competitive with companies like FedEx, UPS and DHL, as well as with rapidly expanding e-commerce firms, such as China-based Alibaba and Singapore’ SingPost. Japan Post has also entered a joint venture with Sankyu Logistics, one of the largest contract logistics firm in the Asia-Pacific region. Other noteworthy M&A deals include Berkshire Hathaway December announcement that it was acquiring oil and chemical industries logistics provider Charter Brokerage, and C.H. Robinson revelation that it is buying Freightquote.com. Freightquote is a privately-held freight broker providing services throughout North America. “Freightquote is a high quality, innovative, growth company that brings a proven model serving smaller businesses,” comments John Wiehoff, C.H. Robinson chairman and chief executive officer. “Its proprietary e-commerce technology allows shippers to easily access competitive rates and automated load acceptance and payment functionality.” Wiehoff maintains that e-commerce is going to be a bigger part of future supply chain services, and that Freightquote will bring synergies to C.H. Robinson’s less than truckload and truckload businesses. “With the addition of Freightquote, we will increase our market share with small businesses and significantly expand our presence in the Kansas City market,” adds Scott Satterlee, C.H. Robinson senior vice president of North America Surface Transportation. Robust Trend Perhaps it’s the healthier global economy, strong US dollar and lower fuel prices that are boosting the transportation and logistics sector and spurring merger and acquisition activity. According to Regg Jones, managing partner and co-founder of private equity firm Greenbriar Equity Group LLC, as the economy continues to stabilize, the transportation industry is consolidating with companies looking to increase market share. “Furthermore, major corporations are looking increasingly to outsource certain non-core activities around the movement of freight and supply chain management,” Jones says. “Logistics companies, in particular, are seeking to expand their capabilities to provide a wider range of services under one umbrella, as clients increasingly look for a single point of contact for a number of related needs.” Many of Greenbriar’s investment opportunities come from already established relationships with market leading companies. “As companies look to reach the next level in growth, not only do they need capital, but also access to broader networks and experienced industry players which Greenbriar provides,” Jones says. Overall, equity firms are finding M&A activity in the logistics sector very robust. Although activity last year was seen as being relatively weak, consulting firm PricewaterhouseCoopers (PwC) found that M&A activity was steady through the fourth quarter of 2014. “M&A activity in the fourth quarter remained consistent with the subdued levels we witnessed throughout 2014, however, we are cautiously optimistic regarding 2015 as the recovery in many advanced economies continues,” says Jonathan Kletzel, US transportation and logistics leader for PwC. He maintains that the strong US economy and strong US dollar makes acquisitions by US players cheaper for offshore targets. “Countries in Europe are beginning to see improvement and emerging and developing economies continue to grow, although the region as a whole remains mixed,” Kletzel says. In addition, emerging and developing economies continue to grow. “Despite the expected deceleration in GDP growth in China for the coming year, the country’s economic growth is still expected to remain strong at more than 7 percent,” he adds. “Meanwhile, India and Brazil are expected to see some improvement.” Looking forward, Kletzel points to one key driver of improved activity across modes: the decline in fuel costs globally. “We expect these prices to improve profitability and shore up balance sheets, providing additional capital for more inorganic growth through M&A,” he says. According to PwC’s report, “Intersections: Fourth Quarter 2013 global transportation and logistics industry mergers and acquisitions analysis”, there were 208 transactions worth $50 million or more in 2014. These totaled $75 billion, compared to 205 deals in 2013 worth $75.1 billion. The shipping and trucking industries accounted for almost half of the year’s activity. PwC attributes this to a significant increase in trucking deals. “Trucking deals are due in part to the highly fragmented industry, as larger companies acquire smaller ones in order to achieve increased market share,” PwC reports in Intersections. Asia and Oceania also drove deal value and volume in 2014, accounting for approximately half of global activity. PwC attributes this, in large part, to deals involving China. According to Intersections, Australian-based local-market deals were also a big part of the region’s activity, with two megadeals, valued at $8.2 billion. Kletzel points to a preference toward local deals, which, he says, reflects less risk taking on the part of acquirers as “local synergies can often be easier to attain given the tendency for there to be more overlap in transportation networks and existing operations.” Cross-border activity was sustainably lower in emerging economies than it was in advanced economies. But as the economy continues to improve, PwC maintains that there may be an increase in cross-border activity. Other highlights in PwC’s analysis revealed: Infrastructure targets, such as toll roads and ports, accounted for a significant proportion of megadeals in 2014 due to the benefit of stable, long-term returns and strong barriers to competition; overcapacity in shipping is believed to be driving consolidation in that mode as larger players attempt to reduce competition and create more efficient economies of scale; and stock swaps, as a means for acquisition financing, increased somewhat in 2014 due to general improvement in the equity market over the course of the year in addition to strong activity in the fourth quarter. Looking ahead, a decline in fuel costs globally could improve activity across modes with the expectation that these prices will improve profitability and shore up balance sheets. “We expect these prices to improve profitability and shore up balance sheets, thus providing additional capital for more inorganic growth through M&A,” the PwC report Intersections concludes.