Private equity interest remains strong in logistics sector

Private equity interest remains strong in logistics sector

Significant domestic and international private equity investment continues to drive deal activity in the UK logistics and supply chain management sector, according to a new report from accountancy and business advisory firm, BDO LLP.

In the second quarter of 2022,over half of deals involved private equity investment – both in terms of acquiring logistics assets and funding consolidation growth plans. UK private equity investment included the acquisition of Inchcape Shipping Services by Epris LLP, while US counterparts remained active with TSG Consumer Partners acquiring a majority stake in Cadogan Tate – a specialist in the transport of fine art and other valuable possessions.

The UK & Ireland M&A Update Q2 2022 – Logistics and Supply Chain Management shows that deal volumes in the sector fell slightly in the second quarter of the year, with 15 deals completed between April and June – 40% of which were cross-border. This compares with 18 in Q1 and the highs of Q4 2021(20). However, transaction levels remain in line with activity seen since the final quarter of 2020.

Jason Whitworth, M&A partner at BDO LLP, said: “Despite the slight dip in transaction volumes in the second quarter of the year, deal interest continues across the sector spectrum, including customs services, technology, freight forwarding and specialist niche logistics.

“M&A activity at the larger end of the market also remains strong. The acquisition of Clipper Logistics by GXO, for example, completed in Q2 with an enterprise value circa £1 billion. The acquisition of John Menzies plc by Kuwaiti Agility Logistics, also values the business at around £1 billion, which is expected to complete in August.”

According to the BDO report, trade consolidation also continued, including the acquisition of regional express delivery service provider, Urgent Deliveries, by CitySprint, which itself was recently acquired by DPD.

Whitworth added: “With economic pressures driving inflation and escalating fears of recession, energy price hikes, political leadership turmoil, tax increases, and interest rates heading upwards, the sector will need to remain flexible and resilient to market changes, with the primary focus once again on operational efficiency and service effectiveness to maintain performance.

“While these economic pressures can be a driver for consolidation, uncertainty as to future earnings will have a knock-on effect on consideration of valuation, which will create some interesting challenges for the next six months of market activity.”

The BDO FTSE Logistics Index shows that the significant gains made when the Logistics index rose by 69% in the six months to June 21, have been balanced by a steady decline to 8% above the starting point by end of June 2022. This reflects the repositioning of consumer spending patterns, with the return to the high street, the threat of inflation, particularly with increasing labour and fuel costs, and the Ukraine war having an impact.

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