BDO M&A - LCSM Q4 BDO M&A 2020 Q4 Logistics & Supply Chain Sector M&A Snapshot

LOGISTICS & SUPPLY CHAIN MANAGEMENT

UK & Ireland M&A Update – Q4 2020

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JASON WHITWORTH, M&A PARTNER

With businesses reacting to the pandemic and focussed on their own operational challenges, it is no surprise to see that Q2 saw a significant fall off in M&A activity. Nonetheless, a number of interesting deals did happen, not least, the £98m acquisition of Fowler Welch by Culina. While this was non-core, it was arguably a deal that would not have happened had it not been for Dart needing to build its financial resilience. It needed to recover from a total shut down in its core airline and holiday operations.

As we start to exit lockdown, it is interesting to see that the core drivers for M&A remain as demonstrated in number of other deals. The acquisition of Return Loads by Mandata and of Connexus by Addesecure demonstrated the continued appetite for innovative technology and synergies through consolidation. Interestingly, both these transactions involved private equity investors, LDC and Horizon Capital respectively, and highlight the investor community’s continued appetite to invest available capital, either to support current portfolio assets or in new quality growth platforms. Looking forward, the crisis will accelerate trends already begun and at the same time unveil new priorities. In addition, the position on Brexit is still to be finalised. Businesses will need to understand and adapt to the long-term economic and operational effects. Change creates opportunity and looking forward I do anticipate further consolidation in the market, as the financial pressures of lockdown hit home later in the year and those with a strong capital base look to grow.

UK LOGISTICS: TRANSACTIONAL ACTIVITY RETURNS STRONGLY

completed in Q4

deals

Increase in

cross border

activity to

of deals

25%

£153m

disclosed deal value

Aggregate

for further information please contact Jason Whitworth

Q4 2020 deal activity

CLICK HERE TO VIEW chart

Possibly some good news as we head in to a new period of lockdown in that we have a Brexit deal! With a trade deal in place, the majority of respondents to our UK logistics confidence survey published late last year felt that Brexit would have little impact on their level of business, whether trading with EU, non-EU or UK customers. However, whilst we have established zero tariffs on goods, the Free Trade Agreement has put up new barriers to the flow of goods, including new paperwork, customs checks, and health/standards checks for food and agricultural products, and consequently added new costs to the expense of cross border trading. At the time of writing there have been only a few incidents of drivers being turned away at ports but there is evidence of goods being held at distribution depots that don’t have the right paperwork. We are currently in the holiday season, the

quietest time for trading in the year, and reports that businesses have been stockpiling in anticipation of supply difficulties may also mean a longer curve before trading resumes at normal levels and we see the full impact. There are also many areas for clarity as we work through the agreement including cabotage and the confusion coming to light over rules of origin. In light of all this, the need to assist customers with the new requirements is providing significant opportunities to offer customs, advisory and consultancy support services. Despite the uncertainty that continued in the run up to the end of 2020, Q4 proved a particularly active period for transactions. Quarterly deal volumes were back at a level consistent with 2019, with 15 transactions completed and some notable names, not least Menzies' acquisition of Bibby Logistics and AIT Worldwide Logistics' acquisition of

Panther Logistics. Activity is still being driven by the demand for scale to drive efficiencies, access to key technologies, and growth opportunities across certain markets such as e-commerce, food and drink and international freight. We may also see supply chain opportunities as the focus on increased infrastructure spend starts to come through. Confidence is building in the market as trade buyers and investors start to see opportunities to generate value. The Q4 reported deal value reverted to a more consistent level following its spike in Q3, when two significantly large transactions impacted the figure. As we enter 2021, we anticipate continued deal activity and have already seen the announcement to confirm XPO’s acquisition of the Kuehne + Nagel UK operations and Mandata’s acquisition of Stirling Solutions. It will also be interesting to see how the strategy of major brands unfold, with Asda announcing its appetite to sell its logistics arm, as conversely Amazon pushes forward plans to invest in its own logistics operation. A new lockdown has reemphasised a focus on the wellbeing of the workforce as we continue to operate in this new environment. My expectation is that the investment appetite from equity institutions will continue to accelerate where points of differentiation can be demonstrated around technology and service, coupled with the growth opportunities in this changing environment. Meanwhile, the drive for efficiencies through consolidation will continue, and the visibility that the trade deal will ultimately provide may open the door to further pan European interest.

of q4 deals

equity investment

involved private

ARE cross border

48 deals were completed in 2020. Lower than 2019 levels, but this is a 10% increase from 2018, despite the uncertainties caused by the pandemic and Brexit.

Number of deals

Deal value (£m)

2015

2016

2017

2018

2019

2020

200

400

600

800

1000

1200

1400

1600

Volume

Value

annual deal activity

Year on year comparison

H1/Q2 2020 deal activity chart will appear here

Source: Capital IQ

BDO FTSE Logistics Index

FTSE All-Share Index

Number of vacancies

07/2019

08/2019

09/2019

10/2019

11/2019

12/2019

01/2020

02/2020

03/2020

06/2020

08/2020

10/2020

12/2020

-60%

-40%

-20%

20%

40%

60%

Source: MergerMarket

Number of deals

Deal value (£m)

2015

2016

2017

2018

2019

2020

500

1000

1500

2000

Volume

Disclosed value (£m)

deal volume & value 2015 – 2020 (Q4)

US PE house Hudson Hill Capital has acquired a majority stake in the UK based transportation and logistics franchisee company InXpress Global. InXpress has a network of almost 400 franchisees in 14 countries, focused on parcel, freight, and delivery logistics services to SME customers through a dedicated software platform.

Aggregate Consideration: £15m

Hudson Hill Capital’s investment in InXpress Global

Nidd Transport, a UK based freight forwarder and operator, was acquired by AIM-listed UK logistics provider, Xpediator plc, for a consideration of £4.6m. The transaction will enhance Xpediator’s earnings, as Nidd’s western European focus provides immediate cross-selling opportunities, complementing Xpediator’s focus on central and eastern Europe, Italy and Germany.

Enterprise Value: £98m

Xpediator plc acquisition of Nidd Transport

LDC has sold Panther Group, a UK-based logistics company, to US-based AIT Worldwide Logistics. The acquisition will expand AIT’s presence in the UK, with Panther's current management team remaining in the enlarged group to support its continued development.

Transaction Value Undisclosed

Sale of Panther Group to US-based AIT Worldwide Logistics

Bibby Line Group has disposed of Bibby Distribution, its UK-based provider of contract logistics, warehousing, distribution, international freight, and systems integration and added value services. The acquisition will expand the geographic presence of Menzies and take its turnover to over £1.2bn, growing its range of B2B retail logistics services and blue-chip customer base.

Transaction Value Undisclosed

Menzies Distribution’s acquisition of Bibby Distribution

Transaction Value Undisclosed

UK based bulk liquid logistics business Braid Logistics was acquired by German beverage logistics provider JF Hillebrand Group. The acquisition is in line with JF Hillebrand’s strategy to be the leader in the logistics services market for alcoholic beverages and non-hazardous bulk liquids. The transaction will add two facilities in UK and China.

Transaction Value Undisclosed

JF Hillebrand’s acquisition of Braid Logistics

Rainkine Thompson Ltd (RTL Telematics), fleet safety and efficiency optimisers through the use of sophisticated management tools capturing vehicle and driver data, has been acquired by Connexas, the UK subsidiary of AddSecure. Connexas provides connected vehicle and mobile worker solutions to commercial vehicle fleets, and has acquired four fleet system related businesses in the last three years.

Transaction Value Undisclosed

Sale of telematics services provider Rainkine Thompson to Connexas

CLICK for diagram

Following the value reductions as the pandemic hit the UK, the BDO Logistics Index has bounced back to levels 39% ahead of where our index started in July 2019. In comparison, the FTSE All-Share Index is 12% down over that period. The Logistics index has significantly outperformed the wider market, particularly from H2 in 2020, reflecting the sector’s role at the forefront of keeping the economy moving and its ability to adapt service requirements to meet the demands of the changing economic dynamics. This rise is underpinned by a strong performance from key operators. Clipper has seen an significant uplift in its value on the back of improved trading performance and recent contract wins particularly around e-commerce activities and the NHS contract for the storage and distribution of PPE. Royal Mail’s value also grew over the period, which may have included some optimism as it looked forward to the appointment of a new CEO. The former Ocado Executive, Simon Thompson was this week announced as taking the role. From a transactional perspective, Wincanton announced the disposal of two non core operations in Q4 with the sale of its container business to Maritime Transport for c.£1.5m, and its commercial fleet services business, Pullman Fleet Services to Aurelius.

BDO LOGISTICS FTSE INDEX VS FTSE ALL-SHARE INDEX JULY 19 - DECEMBER 20

12%

FTSE All Share Index

39%

42% March 2020

July 2020

BDO Logistics FTSE Index

H1/Q2 2020 deal activity

CLICK HERE TO VIEW chart

04/2020

07/2020

09/2020

11/2020

05/2020

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JASON WHITWORTH M&A PARTNER +44 (0)7990 532 296 jason.whitworth@bdo.co.uk

DOMINIC CAUNT M&A +44 (0)7813 631 668 dominic.caunt@bdo.co.uk

HUSAIN LAHER M&A +44 (0)7779 566 450 husain.laher@bdo.co.uk

CONTACT

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Released in November, the 2020 edition of the BDO & Barclays UK Logistics Confidence Index presents the results of our recent survey of the views and insights of 100 senior decision makers, to assess confidence and expectations, as well as the latest hot topics and longer term trends, in the UK logistics sector. This year the Confidence Index has fallen to its lowest level since the survey began in 2012, against a backdrop of

The BDO & Barclays UK Logistics Confidence Index

CLICK for full report

Logistics continues to be a strong and resilient sector, with an appetite to invest for the future - it is perhaps no surprise that the number of companies expecting to make acquisitions is close to our all-time high of 2017. The adoption of technology to address business challenges such as talent shortages has rapidly accelerated this year. Meanwhile, many businesses are continuing to invest in sustainability, with more than seven in ten putting funds into green-related projects over the next 12 months.

unprecedented domestic and global uncertainty created by the pandemic, in addition to ongoing concerns over the UK’s future relationship with the EU and the continuing skills shortages. However, this masks the high degree of polarisation in the views of operators - more than a third of operators reported that the pandemic has had a positive impact on their company’s performance, despite the economic disruption.

BDO Listed Logistics Firms Vs FTSE All-Share Index July 19 - December 20

annual deal activity

CLICK HERE TO VIEW chart

LOGISTICS & SUPPLY CHAIN MANAGEMENT

UK & Ireland M&A Update – Q3 2020

completed in Q3

deals

percentage of q3

Deals which are

cross border

of deals

£1,452m

disclosed deal value

Aggregate

for further information please contact Jason Whitworth

Q3 2020 deal activity

CLICK HERE TO VIEW chart

UK LOGISTICS: A RE-EMERGING APPETITE FOR M&A

With the pandemic continuing to have a dramatic impact on our lives, and Brexit reaching the sharp end of the deal or no-deal decision-making, there is still a great deal of uncertainty in the economy, with performance being driven by the nature of the end-customer markets and the ability of businesses to adapt. E-commerce, food distribution into retail and international freight, particularly around PPE, are some of those markets that are continuing to see growth in demand against the backdrop of the further regional lockdown policies being implemented. There remains a strong sense of caution across the market. However there are signs that trade buyers and investors are starting to see opportunities to generate value, and this is reflected in an increase in Q3 M&A activity. Although deal volume year to date, at 33 deals, is significantly down on the previous year’s 47 deals, there continues to be strong activity from key operators. Deal value in Q3 jumped off the scale due to the £900m acquisition by Advent International of the Hermes Parcelnet and Hermes Germany operations from Otto Group, and the £420m acquisition by Compania Logistica de Hidrocarburos CLH S.A. of fifteen storage terminals from Inter Terminals Limited. The larger deals reflect the appetite for market leadership and opportunity for operational performance benefits in scale. Trade deals in the quarter made up two thirds of the deals, with PE both in the UK and US continuing to show interest in the UK market. The high level of available “investment ready” funds across private equity means investors are actively engaged searching out both niche and disruptive growth opportunities. Having experience of previous downturns, I cannot avoid being apprehensive as the economic impact of the pandemic continues to unfold. However, I continue to be impressed by the way operators are proving to be exceptionally robust and resilient as they adapt, with a number delivering strong growth. Based on the conversations we are having in the market, companies continue to show appetite to make acquisitions in the forthcoming months to support the changing demands of the economic landscape, and the opportunities and challenges it presents.

JASON WHITWORTH M&A PARTNER +44 (0)7990 532 296 jason.whitworth@bdo.co.uk

DOMINIC CAUNT M&A +44 (0)7813 631 668 dominic.caunt@bdo.co.uk

TO DISCUSS ANY MATTERS ARISING FROM THIS UPDATE, PLEASE CONTACT OUR SECTOR TEAM:

Sector perspective - How is the logistics sector responding to Brexit? Read our blog post: