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IntersectionsThird-quarter 2010 global transportation and logistics industry mergers and acquisitions analysis
Curate’s egg: The changing deal environment
www.pwc.com/us/industrialproducts
Welcome to the third-quarter 2010 edition of Intersections, PwC’s quarterly analysis of mergers and acquisitions in the global transportation and logistics industry. In addition to a detailed summary of deal activity in the quarter, including the number and value of deals, this edition contains a special report on the unstable global economy and its impact on the strategic deal environment. Because of increased uncertainty, companies are structuring deals in new ways and handling them differently. To strengthen their core businesses, many companies are expanding their foreign investments. But while emerging markets offer opportunities to grow, they also present commercial risks and challenges.
Intersections 1
Special report:Curate’s egg: The changing deal environment
A curate and his egg
An English idiom, “curate’s egg” comes from a cartoon in the British magazine Punch in November 1895. Over time, the phrase “curate’s egg” has evolved to mean something having a mix of good and bad qualities.
Today’s global economy is like a curate’s egg. Economic expectations are good and bad, positive and negative. As the US economy’s unpredictability generates greater concern, transportation and logistics (T&L) companies are exercising caution as they consider strategic deals in emerging markets where growth in the gross domestic product (GDP) is high.
The concept of a mixed bag is especially relevant to the T&L industry’s mergers and acquisitions (M&A) market. On the positive side, the number of deals announced during the third quarter of 2010 shot up signifi cantly from the previous year, an indication that the global economy is stabilizing. On the downside, worries continue about a protracted economic recovery or a dip, and many global buyers and sellers are taking a wait-and-see approach to deal making.
Meanwhile, US T&L companies continue to focus on their core businesses and creation of the capital resources necessary to grow these businesses in emerging markets. However, the valuations attached to emerging market businesses are very high, resulting in pricing gaps and diffi culties closing deals.
T&L companies are under stakeholder pressure to fi nd growth opportunities, and most commentators predict that the Western economies will be sluggish for the next several years. So investors may look to Brazil, India, China, and to a lesser extent Russia—the BRIC countries—where GDP growth projections for 2011 range from 4% to more than 9%1. In addition to BRIC, companies are looking at the VISTA countries, Vietnam, Indonesia, South Africa, Turkey, and Argentina, as well as Mexico, which is becoming more attractive.
Despite cash-rich balance sheets and a willingness to invest in an emerging market, many T&L corporations are still fi nding it diffi cult to expand their presence into these markets because of not only valuation, but also lack of shareholder visibility and fi nancial transparency in these countries.
Although many companies have realized benefi ts and rich rewards from foreign investment, it has come with risks. Emerging markets offer opportunities to grow, but they also present commercial risks such as protection of intellectual property, compliance with foreign laws and regulations, fraud and corruption, and cultural differences.
And a changing deal environment adds to the challenges.
What’s driving changes in the deal environment?
T&L companies spent much of the past two years preserving liquidity, cutting costs, and improving effi ciency. As a result, many of these companies have excess cash on their balance sheets. Those willing to hurdle the obstacles that foreign investment presents will look to emerging markets for acquisitions that are expected to strengthen their core businesses. A PwC analysis of the top 10 global T&L companies shows that the average amount of cash in the most recent quarter is nearly $3 billion, up from an average of $2 billion fi ve years ago.
Although it appears T&L companies have ample cash on hand to fi nance deals, price becomes an issue when growth rates are higher in the emerging market than in the buyer’s home country. For risk-averse US and European T&L companies, it can be more diffi cult to become comfortable with the premium attached to emerging market businesses. It should be noted that not all T&L company CEOs are risk averse. Rather, they are becoming more deliberate about reshaping not only their strategies, but also their capabilities to address risk. The result is they are taking a smarter course to growth.
Risk consideration also affects buyers from emerging markets seeking to buy low-growth assets within the United States or Europe. In these cases, skepticism about the true value of the asset often derails the deal. Many T&L companies in emerging markets are waiting to see how the US and European economies rebound over the next two quarters before investing.
1 Source: International Monetary Fund, PwC forecasts.
2 PwC
With 2011 GDP projections in the United States and Western Europe below 3%, organic growth for T&L companies is limited at best. Growing by further reducing costs is also not a realistic option—most companies have already taken drastic measures to cut costs and improve operating effi ciencies. This explains why most global T&L companies see M&A as the most viable way to meet stakeholder expectations to grow in the current economic environment despite the aversion to risk.
T&L companies that have already made a signifi cant investment in emerging economies over the past 10 to 20 years are putting plans in place to improve operations and expand their presence to meet booming local demand. For T&L companies, Asia stands out. Many T&L companies already have a presence in the region, and an overwhelming number of these companies anticipate increasing their presence over the next 12 months.
Finally, capital markets are more liquid, making deal fi nancing— in the event it’s needed—more accessible than it was a year ago. Financial buyers, such as private equity houses, continue to operate in the deal market but at subdued levels, making increased corporate buyer activity more likely. However, private equity houses also have ample cash on hand to execute deals should the right opportunity arise.
Managing a changed deal environment
Because of the increased uncertainty, companies are structuring deals in new ways and handling them differently. Specifi cally, many are avoiding large, staged auctions, except in cases that involve a sizable, high-profi le asset. The trend today is toward one-to-one negotiations in off-market deals, where the buyer proactively identifi es and approaches the target. This approach allows for confi dential discussions away from media scrutiny. In this way, corporations looking to divest themselves of noncore businesses can position them for a sale by identifying and briefi ng the potential A-list buyers.
In general, T&L companies have become more cautious and diligent about what they are buying. They no longer favor diversifi cation as a global M&A theme. Instead, T&L companies are looking for deals that can provide new strategic opportunities. For example, bundling services may provide their customers with solutions rather than just products, a move that could generate higher revenue and help customers to leverage synergies throughout their organization.
More than ever, deals today must fi t strategically and commercially with existing operations and drive synergistic growth.
Intersections 3
Perspective:Thoughts on deal activity in the third quarter of 2010
Welcome to our third-quarter analysis of transportation and logistics deal activity. The quarter presents something of a conundrum concerning mergers and acquisitions. Despite several positive signs of the health of the deal market, our predominant conclusion is that recovery in deal activity has paused this quarter.
We base this conclusion on several factors. Total deal value, average deal value, and volume are up compared with 2009 when excluding the $36.7 billion Burlington Northern transaction in fourth-quarter 2009. However, these metrics have remained relatively unchanged over the course of 2010. In addition, the number of megadeals, or deals with a disclosed value of at least $1 billion, has remained consistent in each quarter this year.
Passenger air deals continue to act as a driver of overall activity, which matches an expectation shared in previous editions of Intersections. We believe there is room for further consolidation in this mode because of the industry-wide challenge of remaining profi table. Future airline deals likely will attempt to combine carriers that have relatively little overlap as they target revenue synergies more than cost synergies because of lower regulatory and labor-related hurdles. This trend would match the pattern of several airline megadeals announced in recent years.
In the second-quarter edition of Intersections, we also noted that deals were driven by passenger-oriented, instead of freight-oriented, targets. This bifurcation continued in the third quarter. We can’t ascribe this trend to one specifi c driver given differences in regional transportation markets. However, the relative strength of global consumer spending compared with business spending may be contributing to the attractiveness of such targets at this point in the economic cycle.
So is this a temporary halt in the M&A recovery, or is it the beginning of another downturn? The risks of a double-dip recession in Europe and the United States could potentially lead to an overall reduction in activity given the importance of these regions as drivers of M&A. These regions showed their signifi cance in T&L deal making during the third quarter, for example, with roughly one-third of deal activity involving parties from these areas.
However, the most likely outcome is that deal totals will resume their moderate recovery with acquirers gradually entering into larger transactions. Our reasoning? Many transportation and logistics businesses still have the motivation to improve effi ciency and growth prospects, and they were generally able to improve their balance sheets and liquidity during the recent downturn. We believe that these factors will encourage more acquirers to look to M&A opportunities, thereby leading to resumption in the upward trend in transportation and logistics deal activity.
4 PwC
Quarterly transportation and logistics deal activity Measured by number and value of deals worth $50 million or more (4Q07—3Q10)
2007 2008 2009 2010
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
Number of deals 60 55 42 49 49 22 14 26 34 36 32 31
Total deal value ($ bil) 24.2 22.5 34.4 18.8 22.6 5.5 4.8 8.1 53.0 16.1 14.1 12.8
Average deal value ($ bil) 0.4 0.4 0.8 0.4 0.5 0.3 0.3 0.3 1.6 0.4 0.4 0.4
Deal activity by number of dealsMeasured by number of announced deals worth $50 million or more
Deal activity by total deal valueMeasured by value of announced deals worth $50 millionor more
US companies help T&L sector keep on a steady pace in 2010
The number of deals announced during the third quarter remains above the pace of 2009 and approximates the pace of the year-to-date period. However, total deal value is down slightly from the fi rst two quarters. Note that full year 2009 deal value was boosted by the $36.7 billion Burlington Northern acquisition in the fourth quarter.
A factor that has kept the pace of deal activity in line with more recent periods is the continued recovery in deals involving US entities. These participants were involved in approximately one-fourth of third-quarter announcements. This is an increase from approximately 10% of deals in 2009.
The increase in US involvement in the transportation and logistics deal market may not last. Though the country has recently emerged from a recession, growth expectations are moderate, and the risk of another recession remains. Another downturn would likely limit the attractiveness of targets because of weaker traffi c levels, as well as discouraging acquirers from taking on risks associated with M&A.
Nonetheless, the most likely scenario is that activity will once again resume its slow recovery with acquirers turning to the deal market to augment their competitive positions through expanding route networks. Such expansion could help them improve upon the relatively slow organic growth coinciding with the current traffi c recovery in many transportation and logistics markets.
0
40
80
120
3Q102010YTD2009
86
1210
96 99
18
3123
8
81N
umb
er o
f dea
ls
Number of deals excluding deals with US targets and/or acquirers
Number of deals
Number of deals with US targets and/or acquirers
0
20
40
60
80
100
3Q102010YTD2009
US
$ b
il
Total deal value excluding deals with US targets and/or acquirers
Total deal value
Total deal value for deals with US targets and/or acquirers
30.4
41.0
71.4
43.0
8.3 12.8 9.92.9
34.7
Intersections 5
Deal activity by average deal value Measured by value of announced deals worth $50 millionor more
Deals by transportation and logistics modeMeasured by value of announced deals worth $50 million or more
Average value of deals dips; passenger air deal making stays aloft
Similar to the trend evident in several other deal activity metrics, average deal values have declined since 2009 but are up if the Burlington Northern megadeal is excluded. However, the average value of third-quarter announced deals also remains approximately in line with the level of the fi rst two quarters of this year. This is evidence of a pause in the deal recovery.
Previous reports shared the expectation that the passenger air mode would account for a large proportion of deal value. This held true for the third quarter and 2010 to date, with four of the six megadeals announced so far this year involving airlines.
We also see passenger air as a likely area of activity in future quarters. While the global industry is expected to report a profi table 2010, signifi cant challenges remain in the form of higher fuel costs, labor pressures, and capacity discipline. These diffi culties should encourage acquirers to seek new deals.
0
300
600
900
4,100
3Q102010YTD2009
354
4,099
744
435 459 413 431363
429
US
$ m
il
Average deal value excluding deals with US targets and/or acquirers
Average deal value
Average deal value for deals with US targets and/or acquirers
0%
20%
40%
60%
80%
100%
3Q102010YTD2009
16%
11%
11%45%
16%
26%
3%8%
2% 0% 3%
9%
13%
14%
17%
44%
3%
3%
2%
54%
0%
Shipping
Passenger air
Logistics
Passenger ground
Other
Rail
Trucking
6 PwC
Fewer deals involve minority stake; divestitures climb
Trends in minority stake purchases and acquisition techniques offered more positive signals in the third quarter. Minority stake purchases declined, indicating that acquirers want, and are better able, to take controlling interests in targets. This trend relates to the signifi cant rise in divestitures because these transactions involve the transfer of majority interests.
Another positive indicator is that deals for targets going through bankruptcy or a restructuring declined in the third quarter. These results match the expectation that the deal environment would shift away from need-based transactions and more toward transactions that are expected to support growth.
One note of caution: Concessions and privatizations are also generally down, which is likely refl ective of lingering concern that these transfers or grants could have a negative impact on employment. Job markets need to show sustained improvement in countries that are struggling with unemployment before we are likely to see a signifi cant reversal in the use of these techniques.
Minority stake purchasesMeasured by % of deals worth $50 million or more for < 50% ownership
Deal activity by acquisition techniqueMeasured by percent of announced deals worth $50 million or more
0%
10%
20%
30%
3Q102010YTD2009
15%3%
14%Per
cent
of d
eals
0%
10%
20%
30%
40%
50%
3Q102010YTD2009
Concession
Bankruptcy
Divestiture
Privatization
Restructuring
33%
2% 2% 2% 2% 3%2% 1%
8%
5%
33%
48%
Intersections 7
Median values steady in 2010; interests in type of targets shift
Deal valuation this past quarter matches the level of earlier this year and represents a slight increase from 2009. This generally follows the trend of overall deal activity and indicates that, at least within the T&L sector, valuation remains rational and refl ective both of capital markets that have improved since their post-leverage bubble doldrums and concerns that deal pricing must allow for an adequate return on investment.
The proportion of announcements for private and public parent entities declined in the third quarter as acquirers favored subsidiaries. This interest in subsidiaries relates to the increase in the use of divestitures as strategic participants continue to sell assets.
For example, the largest divesture of a subsidiary this past quarter was Actividades de Construccion y Servicios’s sale of its port operating arm to undisclosed buyers for $956 million. The deal also indicates continued interest in infrastructure assets.
Deal valuation by median value/EBITDAMeasured by value/EBITDA for deals worth $50 million or more
Deals by target ownership statusMeasured by number of deals worth $50 million or more
0
2
4
6
8
10
3Q102010YTD2009
6.2 7.0 6.9
Med
ian
valu
e/E
BIT
DA
0
40
80
120
3Q102010YTD2009
96
2 2
20
36 36
99
2 4
18
2946
31
1 3 4 815
Government
Joint Venture
Public
Subsidiary
Total
8 PwC
Megadeals in 2009 (deals with a disclosed value of at least $1 billion)
Month announced
Target name Target nation Acquirer name
Acquirer nation
Status Value of transaction in US$ bil
Category
Nov Burlington Northern Santa Fe Corp
United States Berkshire Hathaway Inc
United States Completed 36.72 Rail
Nov Transurban Group
Australia Investor Group Canada Withdrawn 4.59 Passenger ground
Nov Iberia Lineas Aereas de Espana SA
Spain British Airways PLC
United Kingdom Pending 2.90 Passenger air
Oct London Gatwick Airport Ltd
United Kingdom Global Infrastructure Partners LLC
United States Completed 2.47 Passenger air
Jun Transdev SA France Veolia Transport SA
France Pending 2.26 Other
Sep Hanjin Shipping Co Ltd -Shipping & Relevant Business
South Korea Shareholders South Korea Completed 1.35 Shipping
Jul National Express Group PLC
United Kingdom Investor Group Spain Withdrawn 1.24 Passenger ground
Mar Smit Internationale NV
Netherlands Koninklijke Boskalis Westminster NV
Netherlands Completed 1.21 Shipping
Jul Shanghai Airlines Co Ltd
China China Eastern Airlines Corp Ltd
China Completed 1.10 Passenger air
Megadeals in 2010 (deals with a disclosed value of at least $1 billion)
Month announced
Target name Target nation Acquirer name
Acquirer nation
Status Value of transaction in US$ bil
Category
Jan Japan Airlines Corp
Japan Enterprise Turnaround Initiative Corp of Japan{ETIC}
Japan Pending 7.00 Passenger air
May Continental Airlines Inc
United States UAL Corp United States Completed 3.69 Passenger air
May Transurban Group
Australia Investor Group Canada Withdrawn 3.68 Passenger ground
Aug TAM SA Brazil LAN Airlines SA
Chile Pending 3.43 Passenger air
Mar Arriva PLC United Kingdom Deutsche Bahn AG
Germany Completed 2.43 Passenger ground
Sep AirTran Holdings Inc
United States Southwest Airlines Co
United States Pending 1.04 Passenger air
Intersections 9
Passenger airlines reposition fl ight path with megadeals
Two megadeals were announced during the third quarter of 2010, which matches the pace of each of the fi rst two quarters of the year. Both megadeals were passenger air announcements.
The $3.4 billion LAN Airlines acquisition of TAM is expected to create a formidable player in the South America market. The carriers are planning to maintain separate brands and management but achieve at least $400 million in synergies, most of which are expected to come from revenue benefi ts to the combined carrier.
The long-term implications of this announcement are also signifi cant as it pertains to airline alliances. LAN is part of oneworld and TAM is part of Star, so the choice of the combined Latam carrier post-merger will have implications for alliance positions in South America.
The other megadeal announced this past quarter was Southwest Airlines’s $1 billion offer for AirTran Holdings. This deal combines two low-cost carriers and builds Southwest’s presence on the East Coast of the United States. The expanded domestic network from this merger should help Southwest from a profi tability standpoint by offsetting industry cost pressures with new revenue opportunities.
Two other passenger air megadeals were announced earlier this year. The fi rst was the Enterprise Turnaround Initiative Corp.’s acquisition of Japan Airlines (JAL). This followed JAL’s bankruptcy fi ling in early 2010. JAL is undergoing a restructuring and seeking additional capital injections with the eventual goal of re-listing the stock. In the other air megadeal, the merger between UAL Corp. and Continental has closed, creating the largest global carrier. The attention of this airline now turns to achieving a single operating certifi cate and beginning to deliver the target of $1 billion to $1.2 billion in annual synergies by 2013.
In addition to these passenger air deals, the megadeal table in 2010 features two passenger ground deals. An investor group led by the Canada Pension Plan Investment Board and the Ontario Teachers’ Pension Plan eventually withdrew its $3.68 billion tender offer for Transurban Group because the parties could not reach an agreement on price. This deal signals that, despite the recovery in deal valuations, a potential impediment to future transactions could be the lingering gaps in buyer and seller expectations.
The other passenger ground megadeal was Deutsche Bahn’s $2.4 billion offer for bus and train company Arriva PLC. This deal has received regulatory approval but requires that Deutsche Bahn divest Arriva’s German operations. The Arriva acquisition is interesting because it demonstrates the recent interest shown by European state-owned transportation operators in repositioning themselves for a more deregulated market. Deregulation could lead to additional passenger ground consolidation in Europe, with smaller independent operators as potential targets.
10 PwC
Regional distribution of BRIC deals by acquirer regionMeasured by number of announced deals worth $50 million or more
Acquirers from advanced versus emerging and developing economiesMeasured by number of deals worth $50 million or more
China tallies most quarterly BRIC acquisitions; advanced countries still lead the way
The regional distribution of sector M&A shows several interesting trends. First, China has become a more signifi cant acquirer in the market, accounting for a much greater proportion of overall deal volume in the third quarter compared with 2009. While the modes of targets involved in the China deals varied, all but one of these deals were local-market transactions. This deal characteristic is likely to persist because of the rationale for Chinese acquirers to focus on consolidating relatively fragmented domestic markets.
The trend in local-market acquisitions has also led Asia and Oceania acquirers and targets to account for almost half of the number of deals announced in the third quarter, though the value of deals by region was much more balanced among geographies.
Despite the rise of China as a T&L deal maker, the proportion of activity involving advanced economy acquirers remains even with 2009. Though acquirers from several key advanced economies have become less active, the return of US parties to the deal market has supported overall deal totals by advanced economy entities.
Assuming a baseline scenario of a continued modest economic recovery, it is likely that acquirers in advanced economies as well as those in emerging and developing economies will increasingly contribute to future deal totals in the sector—but for different reasons. Emerging and developing economy acquirers will need to attempt to build scale to compete in their local markets, while advanced economy acquirers are likely to attempt to boost organic growth, which in many cases requires cross-border expansion into higher-growth markets.
China
India
Russian Fed
Brazil
Total
0 10 20 30
2010YTD
2009
3Q10
2126
8
23
0
1913
7
1
14
5
00
0%
20%
40%
60%
80%
100%
3Q102010YTD2009
Emerging and developing
Advanced
64.6%
35.4%
60.6%
39.4%
64.5%
35.5%
Intersections 11
Regional distribution of deals by target regionMeasured by number of deals worth $50 million or more (3Q10)
Regional distribution of deals by acquirer region Measured by number of deals worth $50 million or more (3Q10)
Regional distribution of deals by target regionMeasured by value of deals worth $50 million or more (3Q10)
Regional distribution of deals by acquirer regionMeasured by value of deals worth $50 million or more (3Q10)
Asia & Oceania North America South AmericaUK & Eurozone Europe ex-UK & Eurozone Africa/Undisclosed
45.2%19.4%
19.4%
12.9%
3.2%
48.4%
16.1%
25.8%
6.5% 3.2%
26.5%
19.9%
11.1%
37.8%
4.6%
27.5%
22.7%18.4%
30.9%
0.4%
12 PwC
Historical transportation and logistics deal activity and the business cycleMeasured by number and value of all deals (1Q81-3Q10)
Will historical pattern hold up?
Previous Intersections reports have noted that the historical pattern of global transportation and logistics M&A activity coming out of two of the past three US recessions has been one of general improvement. Activity as measured by both the value and number of announced deals increased following the 1981-1982 recession, and the deal value also increased following the 2001 recession. The exception to this pattern was the 1990–1991 recession, which was followed by a decline in deal totals.
While the United States and Europe may be recovering from economic downturns, the risk of a double-dip recession remains. This factor somewhat hampers an otherwise optimistic outlook for deal activity entering the fi nal quarter of 2010.
050
100150200250300350400450
0
25
50
75
Deal value (right axis, $ billions)Recession
Number of deals (left axis)
2009
2010
2007
2008
2005
2006
2003
2004
2000
2002
2001
1999
1997
1998
1995
1996
1993
1994
1991
1992
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
Intersections 13
Results from PwC’s 13th annual Global CEO Survey show that chief executive offi cers from large companies were more likely than those from smaller companies to complete an acquisition or enter a strategic alliance. Leaders of large corporations also were planning deals and alliances in the coming year, according to the survey, released in January 2010. Many of these planned transactions were expected to be cross-border deals because of the opportunities available in emerging markets.
More companies will take a cue from those venturing beyond their own national borders to fi nd their ideal acquisition candidate as economic interdependencies grow. The PwC Corporate Finance network closes one deal a day on average around the globe in midmarket M&A transactions, and more than 40% are cross-border deals.
Savvy acquirers learn lessons from each successful cross-border transaction and use this knowledge to navigate effectively through the obstacles, such as questionable business practices, inconsistent bookkeeping methods, political instability, and poor environmental controls.
As you know, the challenges of cross-border deals differ depending on the business size and the country. But leading companies conduct deals using essentially the same processes: Establish the strategic purpose for each acquisition; manage and monitor employee engagement; address change management issues; apply best practices for integration; and track progress toward achieving the desired culture in the new company.2
How PwC Corporate Finance3 can help
PwC’s award-winning practice in Corporate Finance (more commonly known as Investment Banking in the US) provides independent fi nancial advice to corporations, institutional investors, and governments seeking to buy or sell businesses, raise new fi nancing, or improve the effi ciency of the funding on their balance sheets. Our focus is on building long-term client relationships rather than closing a deal regardless of whether it is in the client’s best interests. We are independent of the source of fi nancing and so we differentiate ourselves through intellectual, not fi nancial, capital.
These factors, combined with our deep knowledge of the transportation and logistics sector and our international network, make great deals better.
Our global network of corporate fi nance advisors makes the difference for many reasons:
• We have a talented team of more than 1,000 corporate fi nance professionals operating in more than 60 countries. We can send our professionals whenever and wherever you are doing deals.
• We provided in-depth fi nancial advice on more than 300 announced deals globally per year with an average deal size of $135 million in the 10 years from December 1999 to December 2009. More than 40% of these deals were cross-border.
• We have extensive industry capabilities, expertise in local markets, and a proven track record advising corporate clients and institutional investors.
• Thompson Reuters reported that PwC Corporate Finance completed the second-highest volume of deals globally in the midmarket for the 10 years through December 31, 2009.
• We can bring the strength of the PwC Corporate Finance network to bear by sourcing acquisition targets globally, including the BRIC countries and other emerging markets.
As experienced deal makers, we offer integrated solutions with full access to PwC’s specialists in due diligence, tax, and post-deal activities. We provide the full range of deal support, from identifi cation and strategic planning to post-merger integration.
2 PwC Global Best Practices, “Analyze and capitalize on cross-border opportunities.”3 Corporate Finance services in the United States are performed by PricewaterhouseCoopers Corporate Finance LLC, a registered broker dealer. PricewaterhouseCoopers Corporate Finance LLC is owned by PricewaterhouseCoopers LLP, a member fi rm of the PricewaterhouseCoopers Network, and is a member of FINRA and SIPC.
PwC Spotlight
14 PwC
Specialty case studies: Buying and selling global assets
Issue A global T&L company based in Europe made a strategic decision to sell one of its noncore business units located in the United States but needed help planning, executing, and fi nalizing the divestment to maximize proceeds. In particular, the client needed assistance fi nding an appropriate global buyer, determining valuation, anonymously soliciting interest from buyers, and presenting the noncore business in the best light. Complicating the transaction, the fi nancial records of the business to be divested were integrated into the fi nancial records of the client’s other operations and needed to be carved out.
Action To help the client fi nd the right buyer for its business unit, PwC’s Corporate Finance practice conducted a global sales process and contacted more than 50 potential buyers in the United States, Canada, Europe, Brazil, South Africa, and Asia, including India, China, and Japan. PwC Corporate Finance assisted in understanding and positioning the business for sale, acting as the initial point of contact with the potential buyers, and assisting with the negotiations around price and the other major terms in the sale and purchase agreement. The sale process also included the negotiation of multiple ancillary supply, tolling, and transition service agreements.
A PwC Transaction Services engagement team assisted and advised the client as they drafted separate, accurate fi nancial records for the business unit being divested. These fi nancial statements formed the basis from which potential buyers were asked to submit offers for the business.
Impact The Corporate Finance engagement team’s sale process yielded nearly a dozen indicative offers and six fi nal offers. Of the indicative offers, four were from the United States and Canada, four were from Asia, and three were from Europe. Most of the offers were from strategic buyers. The deal was closed with an Indian buyer for this US asset owned by a European client.
The PwC sell-side diligence information withstood scrutiny from multiple buyers, and the client was able to successfully achieve its divestiture objectives. The client sold the business to a buyer for a price within 3% of the top end of the PwC Corporate Finance team’s preliminary valuation range.
Noncore disposal
Intersections 15
Issue A US T&L company wanted to enter a high-growth market as a way to meet stakeholder demands to accelerate growth. The client had its sights set on a Chinese target, but had limited knowledge of the country and how to fi nd a suitable target. To move its plans for strategic growth forward, the client described its global acquisition criteria to PwC Corporate Finance in the United States.
Action PwC Corporate Finance reached out to PwC’s global Corporate Finance network with the acquisition criteria. In response, PwC Singapore identifi ed a potential acquisition target that was based in China and owned by a private equity house in Singapore. Because of an existing relationship between PwC Singapore and the private equity house, the Corporate Finance engagement team was able to introduce the US client to the target on an exclusive basis without the deal going to an auction. The fi rm’s Transaction Services practice in both the United States and China provided the due diligence services to the US client.
Impact A US client that had limited exposure to or experience in the Asian market was given an opportunity to buy a business in China. The PwC Corporate Finance engagement team assisted in the negotiations, including pricing and structure, as well as the due diligence on the acquisition target.
Because the deal was handled as a one-to-one, off-market transaction, the client acquired the Chinese business on an exclusive basis at an acceptable price.
Acquisition identifi cation and advice
16 PwC
Asia
North America & the Caribbean5,000 Industrial Products professionals420 Transportation & Logistics industry professionals
South America2,300 Industrial Products professionals280 Transportation & Logistics industry professionals
Europe14,200 Industrial Products professionals2,330 Transportation & Logistics industry professionals
Australia & Pacific Islands1,300 Industrial Products professionals210 Transportation & Logistics industry professionals
8,300 Industrial Products professionals1,500 Transportation & Logistics industry professionals
Middle East & Africa1,200 Industrial Products professionals185 Transportation & Logistics industry professionals
Deep transportation and logistics experience
PwC provides advisory, assurance, or tax services for over 93% of the transportation and logistics companies listed in the Fortune 500. Our Transportation & Logistics practice is composed of a global network of approximately 4,900 industry professionals who service nearly 300 public and private companies located around the world. Central to the successful delivery of our services is an in-depth understanding of today’s industry issues and our commitment to delivering economic value through specialized resources and international leading practices. Our highly skilled team encourages dialogue regarding complex business issues through active participation in industry conferences and associations, such as the Air Transport Association, American Trucking Association, American Railroad Association, and European Logistics Association.
Quality deal professionals
PwC’s Transaction Services practice, with more than 6,500 dedicated deal professionals worldwide, has the right industry and functional experience to advise you on factors that could affect a transaction, including market, fi nancial accounting, tax, human resources, operating, information technology, and supply chain considerations. Teamed with our Transportation & Logistics industry practice, our deal professionals can bring a unique perspective to your transaction, addressing it from a technical as well as industry point of view.
Local coverage, global connection
In addition to global transportation and logistics resources, our team is part of an expansive Industrial Products group that consists of more than 32,000 professionals, including approximately 17,000 providing assurance services, 8,300 providing tax services, and 7,000 providing advisory services. This expands our global footprint and enables us to concentrate efforts in bringing clients a greater depth of talent, resources, and know-how in the most effective and timely way.
PwC Experience
Intersections 17
Contacts
US Industrial Products Marketing ManagerDiana Garsia—+1 [email protected]
US Industrial Products Sector AnalystTom Haas—[email protected]
US Research AnalystMichael Portnoy—[email protected]
Editorial ContributorKathy Robbins—[email protected]
Global T&L LeaderKlaus-Dieter Ruske—[email protected]
Global T&L Advisory LeaderBert Kuypers—[email protected]
United Kingdom T&L LeaderClive Hinds—[email protected]
Central and Eastern Europe T&L LeaderNick Allen—[email protected]
China-Hong Kong T&L LeaderAlan Ng—[email protected]
Australia T&L LeaderDon Munro—[email protected]
Middle East T&L LeaderAlistair Kett—[email protected]
PwC Global Transportation & Logistics practice
PwC’s Transportation & Logistics practice provides industry-focused assurance, tax, and advisory services. Through our global network, we can draw upon the in-depth industry experience of professionals in every country in which your company operates.
US T&L Industry LeaderKenneth H. Evans Jr.—[email protected]
US T&L Advisory LeaderChuck Marx—[email protected]
US T&L Tax LeaderMichael J. Muldoon—+1.904.366.3658, [email protected]
US T&L Transaction Services PartnerDana Drury—[email protected]
US T&L Transaction Services DirectorRichard E Hasselman—[email protected]
US T&L DirectorBryan Terry—[email protected]
US T&L Senior ManagerDavid Mandelbaum—+1.646.471.6040, [email protected]
US T&L Assurance Senior ManagerJeffrey J. Simmons—+1.214.979.8606, [email protected]
US Industrial Products DirectorNeelam Sharma—[email protected]
18 PwC
Global Logistics and Post CoordinatorKenneth H. Evans Jr.—[email protected]
Global Rail and Infrastructure CoordinatorJulian Smith—[email protected]
Global Shipping and Ports CoordinatorSocrates Leptos-Bourgi—[email protected]
Global Airline and Airport CoordinatorMartha Elena Gonzalez—[email protected]
Global T&L Business Development and MarketingPeter Kauschke—[email protected]
Global T&L Knowledge ManagementUsha Bahl-Schneider—[email protected]
PwC Corporate Finance global network
Corporate Finance services in the US
US Industrial Products Corporate Finance Leader PricewaterhouseCoopers Corporate Finance LLC Rakesh Kotecha—+1.312.298.2895 [email protected]
Corporate Finance services outside the US
Global Corporate Finance Leader Chris Hemmings—+44.20.780.45703 [email protected]
PwC Global Transaction Services practice
PwC’s Transaction Services practice offers a full range of tax, fi nancial, business assurance, and advisory capabilities covering acquisitions, disposals, private equity, strategic M&A advice, advice on listed company transactions, fi nancing, and public-private partnerships.
Global Transaction Services LeaderColin McKay—[email protected]
US Transaction Services LeaderJohn McCaffrey—[email protected]
Europe Transaction Services LeaderPhillippe Degonzague—[email protected]
Asia-Pacifi c Transaction Services LeaderChao Choon Ong—[email protected]
US Transaction Services, AssuranceBrian Vickrey—[email protected]
US Transaction Services, TaxMichael Kliegman—[email protected]
US Transaction Services, Merger IntegrationDavid Limberg—[email protected]
US T&L Transaction Services DirectorEmeric Déramaux—+1.646.471.7819, [email protected]
Intersections 19
Methodology
Intersections is an analysis of mergers and acquisitions in the global transportation and logistics industry. Information was sourced from Thomson Reuters and includes deals for which targets have primary NAICS codes that fall into one of the following NAICS industry groups, NAICS industries, or national industries: scheduled air transportation; nonscheduled air transportation; rail transportation; deep-sea, coastal, and Great Lakes water transportation; inland water transportation; general freight trucking; specialized freight trucking; urban transit systems; interurban and rural bus transportation; taxi and limousine service; school and employee bus transportation; charter bus industry; other transit and ground passenger transportation; support activities for air transportation; support activities for rail transportation; support activities for water transportation; other support activities for road transportation; freight transportation arrangement; other support activities for transportation; postal service; local messengers and local delivery; general warehousing and storage; refrigerated warehousing and storage; other warehousing and storage; and process, physical distribution, and logistics consulting.
This analysis includes all individual mergers and acquisitions for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between January 1, 2007, and September 30, 2010, with a deal status of completed, intended, partially completed, pending, pending regulatory approval, unconditional (i.e., initial conditions set forth by the acquirer have been met but deal has not been completed), withdrawn, seeking buyer, or seeking buyer withdrawn. The term deal, when referenced herein, refers to transactions with a disclosed value of at least $50 million unless otherwise noted.
Regional categories used in this report approximate United Nations (UN) regional groups as determined by the UN Statistics Division, with the exception of the North America region (includes North America and Latin and Caribbean UN groups), the Asia and Oceania region (includes Asia and Oceania UN groups), and Europe (divided into United Kingdom, plus Eurozone and Europe ex-UK and Eurozone regions). The Eurozone includes Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Oceania includes Australia, New Zealand, Melanesia, Micronesia, and Polynesia. Overseas territories were included in the region of the parent country, and China, when referenced separately, includes Hong Kong. International Monetary Fund classifi cations were used to categorize economies as advanced or developing and emerging.
Visit our transportation and logistics industry websiteat www.pwc.com/us/industrialproducts© 2010 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” and “PwC” refer to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, the PricewaterhouseCoopers global network or other member fi rms of the network, each of which is a separate and independent legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. MW-11-0107
PricewaterhouseCoopers has taken all reasonable steps to ensure that information contained herein has been obtained from reliable sources and that this publication is accurate and authoritative in all respects. However, it is not intended to give legal, tax, accounting, or other professional advice. If such advice or other expert assistance is required, the services of a competent professional should be sought.
