Insights: the deal market in the logistics sector
A report by the Freight Transport Association (FTA) indicates that activity in the UK logistics market has grown strongly over the past two years, aided by the falling price of oil and despite the geo-political and economic uncertainty faced by the industry. The Logistics sector is now one of the UK’s strongest performing sectors, bringing approximately £60 billion to the country’s economy (5% of UK GDP) and employing over 2 million people nationally.
This is in large part due to the direct impact on the UK logistics sector of continued economic growth with Gross Domestic Product (GDP) growing by 2.2% in 2015 according to the latest figures from the Office for National Statistics (ONS). Additionally, the Government’s announcement of £15 billion of infrastructure spending plans poses a competitive advantage for the UK logistics sector, but such investment brings both opportunities and challenges.
The development of emerging markets such as China and India has had a beneficial impact on the logistics sector and an increasing number of UK logistics businesses have consolidated their position, managing the import into the UK consumer of goods manufactured in lower-cost economies. Whistl, the second largest postal operator in the UK is seeing growth through offering its customer base a growing variety of international delivery options.
UK logistics companies have also benefited from a change in retailers’ desire to present completely tailored shopping experiences for their customers coupling speed and certainty via track & trace deliveries. Indeed, online retailers are tending to outsource their warehousing and distribution services to logistics companies who have the expertise and technological capability to meet customers’ expectations. ILG, a business we advised on an MBO in 2015 has supported several clients to maximise their delivery experiences to customers.
A report by Barclays whilst suggesting that the short-term outlook for the sector is generally positive, notes the challenges of skills and driver shortages, margin pressure, increasing competition for customers and changing nature of customers’ demands due to urbanisation.
Such a dynamic market is generating an increase in deals seen in this sector with over 320 logistics sector deals taking place in the UK and Eurozone in 2015 according to data from Thomson Reuters. Notable logistics sector deals in 2015 included LB Group’s acquisition of LeasePlan for over $4 billion, FedEx’s £3.2 billion bid for TNT Express, the €3.24 billion acquisition of Norbert Dentressangle by XPO and the $3 billion acquisition of Conway Trucking by XPO Logistics.
For smaller companies, consolidation, joint ventures, collaboration and the formation of networks or alliances will provide opportunities to grasp these opportunities through enhancing or diversifying their services and thereby improving their competitive advantage. The expectation for the next 12 months is that future deal activity will mainly be in the sub-£100 million sector with some smaller operators taking the opportunity to cash out rather than compete or with vertical integration coming into play.
Currently we are advising on just such a consolidation play in the sector and recently advising on the MBO of Dalepak to add to several other successful UK logistics sector deals in the last 12 months.