Deal activity in the UK logistics and supply chain management sector got off to a slow start in 2023, with deal volume and value falling sharply in the first quarter of the year, according to a report by accountancy and business advisory firm BDO LLP.
The report, UK & Ireland M&A Update Q1 2023, reveals that transaction volumes dropped by more than a quarter between January and March 2023, compared to the previous quarter, with 13 deals completed (17 in Q4 2023) at a total disclosed deal value of just over £70m – as compared to £378m for the previous three months.
According to the report, in the first quarter of the year, 38% of deals were cross-border. This compares to 60% in Q4 2023.
Private equity investment was also lower in Q1, with one transaction involving direct PE investment. However, three acquisitions were completed by private equity backed businesses, demonstrating the continued influence of private equity in the sector.
Jason Whitworth, BDO LLP mergers and acquisitions partner, said: “It’s fair to say that deal activity got off to a slow start in 2023. The sharp fall in deal volume and, more significantly, in value in Q1, no doubt reflects the changing outlook, given the economic dynamics the sector faced as it entered 2023.
“It is reassuring to see that appetite from buyers and investors remains high, despite current caution over the delivery of future earnings which has made completing deals more challenging at this time.
“I would anticipate a pick-up in activity as the market stabilises and there is more consistency in pricing and earnings expectations”
Prominent Q1 deals included Janssen Distribution Services’ acquisition of Norman Global Logistics; the sale of Absolutely Courier to DPD UK; and the sale of Hollyport Logistics to international freight forwarders, Spatial Global.
The report comes as a poll of logistics industry leaders, conducted by BDO LLP, found that 82% of respondents said that changing levels of demand or volume was the biggest challenge facing their business at the moment.
- Logistics sector defies Brexit skills shortage to deliver strong growth, BDO M&A report reveals
- Turbulent background to Brit Pol collapse laid bare in new report
- “Truck prices are through the roof and volumes are not what they used to be…”
The poll, which was part of a national series of events jointly hosted by BDO LLP and Barclays Corporate Banking, found that more than a quarter (29%) ranked customer pricing pressure as their greatest concern.
Customers’ changing service level expectations (24%) also made the top three – above the likes of fuel and energy costs, disruption in the supply chain, and staff shortages and costs.
In response to the challenges, more than half of the respondents (59%) said that, in a bid to support business growth, they intend to focus investment on technology that will drive efficiencies.
More than half (53%) admitted that they plan to add to their existing customer base by entering new end markets, both domestically and internationally.
The poll also confirmed the growing prominence of technology in the logistics and supply chain management industry. In the next five years, 59% of the attendees believed there will be a wider use of technology in supply chain processes, such as AI and big data, with more automation being introduced business wide, including warehouse automation, autonomous vehicles, 3D printing, and the increasing use of drones.
Whitworth said: “Technology is playing a vital role in a rapidly evolving logistics and supply chain management sector, with rapid change expected over the next five years.
“The role of technology is not only influencing how businesses are operating, but it’s also shaping decisions being made by investors, who are increasingly being attracted by those businesses willing to push boundaries and innovate in response to a changing market.”
James Lean, Barclays Corporate Banking industry director of manufacturing, transport and logistics, added: “Capital expenditure remains a key and somewhat unavoidable priority for the sector despite volatility in volumes, with a majority of clients anticipating significant spend on driving even more efficient service models, quenching the customer thirst for data and adopting emerging ESG-related technologies.
“Many eyes within the sector will be keenly focussed on seeing how operators get on with their trials of larger 7.5 to 19 ton electric trucks, HVO diesel and potentially hydrogen fuel cells.”