M&A activity in logistics sector falls for third successive quarter

M&A activity in the UK logistics and supply chain management sector has fallen for the third successive quarter, after hitting a record high in Q4 2021.

Excluding mid-2020 in the peak of the pandemic, figures for the third quarter are at their level lowest since 2018, with 12 deals completed between July and September – 17% of which were cross-border. This compares with 15 in Q2 and the highs of Q4 2021.

According to a new report from accountancy and business advisory firm BDO, private equity activity in the last quarter also fell, although the influence of investors is still prevalent as acquisitions are being made by private equity-backed businesses.

The UK & Ireland M&A Update Q3 2022 – Logistics and Supply Chain Management also shows that deal value increased during the third quarter of the year; however, this was distorted by the takeover of John Menzies by Agility at a value of around £0.8bn.

Excluding this, total disclosed deal value has remained relatively low.

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Jason Whitworth (pictured), M&A partner at BDO, said: “Transaction levels in the logistics and supply chain sector have been under significant pressure for some time and the latest figures are testament to an increasing note of caution amongst leading decision makers across the sector.

“Our recent BDO-Barclays Logistics Confidence Index saw the score slip from last year’s highly optimistic score of 62.5 to 50.4. This reflects a sense of realism in the market as it readjusts to the challenges of high inflation, soaring fuel and energy prices and a more uncertain economic landscape.

"Interestingly, despite these challenges, mergers and acquisitions continue to be a strategic priority for logistics companies, with 45% of respondents reporting that they were likely to make an acquisition in the next 12 months - the highest figure ever recorded in the survey’s 10-year history.”

Standout deals in Q3 included Marks & Spencer’s acquisition of Gist; Mandata’s acquisition of Eureka Information Systems; the sale of World Options to MBE Worldwide; Aurrigo International’s IPO on AIM; BGF’s £15m investment in ITD Global; and Carousel Logistics’ acquisition of Alltrans.

Whitworth added: “Operators are clearly seeking to achieve economies of scale and expand their service offering, ingraining a trend for consolidation into what remains a fragmented industry. However, the levels of uncertainty in the current market are making deal do-ers cautious, particularly around valuing future earnings. Buyers are nervous of overpaying, as a market shifting with fragile consumer confidence means future market share post-acquisition is difficult to predict.

“While interest in quality assets is tempered by caution, there remains the opportunity to target strategic assets, whilst a number of businesses may be anticipating an opportunity to acquire distressed businesses, and waiting as economic pressures continue to bite.”

The BDO FTSE Logistics Index shows that the significant gains made by the sector through lockdown, when the Index rose by 69% in the six months to June 2021, have been balanced by a steady decline. A more recent drop reflects wider market confidence levels, including 26% in the last quarter, to finish 15% below the starting point at the end of September 2022. It is now tracking behind the wider FTSE All-share index, which has also fallen by 5% in the last quarter to finish 7% down on October 2019.