Market Overview

Consolidation Within European Freight Forwarding Business Continues

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Consolidation Within European Freight Forwarding Business Continues

The recent acquisition of formerly SIX Swiss Exchange-traded freight forwarder and logistics specialist Panalpina by acquisitive Copenhagen-listed transportation and logistics company DSV marks one of the few M&A deals that have occurred in the market over the last several years.

Initial offers from DSV to acquire Panalpina were rebuffed in February by the Ernst Goehner Foundation, which held a 46% share in the company. In response, DSV increased the offer in spite of pressure from private equity firms Cevian Capital, which held a 12.3% stake, and Artisan Partners, which held a 9.9% ownership position. Also, in February, Panalpina held unsuccessful preliminary discussions with smaller rival Agility Group about a potential tie-up.

The move on Panalpina by multiple bidders attests that there was appetite for at least this deal.

And, in late November 2018, private equity investor EmergeVest announced formation of EV Cargo, consolidating ownership of six UK logistics companies: B2B cloud software solutions and supply chain management provider Adjuno; retail-focused logistics and freight forwarder Allport Cargo Services; hauliers CM Downton, Jigsaw Transport; NFT Distribution; and pallet distributor and warehouse operator Palletforce.

Since formation in 2013, EmergeVest, with reported annual revenues approaching £900 million ($1.12 billion), has been an active investor on a global basis, with an emphasis on business services, particularly logistics and related technology. The company's previous and current portfolio includes investments in logistics, technology, business services, media and apparel.  

"DSV's takeover of Panalpina and CMA CGM's offer for CEVA left many analysts wondering if this is the beginning of another wave of consolidation in logistics and transportation. But since April, logistics M&A has stayed fairly quiet," according to Robert Keen, director general of the British International Freight Association (BIFA), a trade association that represents the interests of UK freight forwarders.

The dearth of M&A deals extends further back, according to Michael Nayden, director of supply chain and manufacturing operations at Deloitte Consulting. Nayden told FreightWaves that the zenith of M&A activity in the sector was in 2017, with an increase of about 40% over 2015 activity; in 2018, the sector experienced 20% less activity than in 2017.

Nayden maintains that the $1 trillion logistics and freight forwarding industry is "highly fragmented," suggesting that there may not be critical mass among potential takeover targets.

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Philip Stephenson, chairman of privately held UK-based freight forwarder Davies Turner, agrees with Nayden, adding that expansion via acquisition is expensive and "you need to be realistic about what you can finance."

Davis Turner, with about $225 million in annual revenue, chooses to retain an intermediate position, focusing on the UK and Ireland.

Keen tells FreightWaves that predictions 50 years ago indicated that "only a handful of large forwarding companies would survive."

He adds: "The general consensus was that the evolving operational environment would benefit only the largest forwarding companies that had the most leverage with the service providers, leaving the smaller ones to wither on the vine.

"Over those 50 years, small and medium-sized forwarding companies have often found themselves at the core of the debate about how the logistics supply chain is evolving, helping to create new policies while adapting to new ways of doing business," Keen says.

"Some have said that with increasing digitization, platform-based business models will connect new players, wash away inefficient old ones, and harness the cloud. They conclude that this will inevitably lead to the demise of the forwarder."

He adds that, while the convergence of rich logistics data streams; new cloud, platform and blockchain technologies; and strong market forces will give rise to new platform business models in the logistics, trade, freight, and maritime industries, the freight forwarding sector will be capable of adapting to the changing market structure.

While private equity investments tend to have short-term horizons, Heath Zarin, chief executive officer of EV Cargo, tells FreightWaves that the company has a long-term focus.

"We believe we have a unique opportunity to create superior value for our investors in this portfolio by creating the EV Cargo Group, holding it for much longer, and using it as a platform to create a substantial global logistics and technology business.  

"We expect to complete many additional acquisitions over the next few years, both to consolidate our position in the U.K. and Europe, and also to significantly strengthen our global proposition with acquisitions in Asia and the Americas," according to Zarin.

Zarin adds that there is significant private equity investment in the logistics and freight forwarding sector. "It is attractive to us because we have deep domain knowledge of the industry and we can clearly see the value creation opportunities from deploying EVOS, our EmergeVest Operating System of revenue and profit growth programmes, to drive performance in historically successful businesses that need to adapt to a rapidly evolving competitive landscape."

Zarin forecasts increasing consolidation activity in the sector. "The forwarding and logistics sectors are going to be increasingly powered by technology. The investments required in digitalizing the customer proposition and operating model are enabled by scale. This will be a key driver of consolidation. Furthermore, large customers increasingly want complex multi-discipline solutions which can be delivered most effectively by businesses with a broad span of capability, so service range, as well as pure scale, is a driver of consolidation."

Posted-In: European Union FreightM&A News Eurozone Global Markets General

 

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