Record Prices Germany Left Out of Global Lust for Logistics

Investors are paying record prices for harbors, airports and transportation firms worldwide, but German bidders are surprisingly restrained.
Competing logistics companies on the job in New York City.

Never before have companies put as much money into logistics takeovers as in 2015.

Worldwide, investors made $180 billion available for the purchase of existing transport firms, harbors and airports, according to the accounting firm PwC. That's almost as much as in the three previous years combined.

Yet logistics world champion Germany, which with Deutsche Post and DB Schenker is home to the two largest European logistics companies, was surprisingly restrained in 2015.

“Many companies in the transport and logistics sector are currently carrying a full load with operational challenges,” said PwC division manager Dietmar Prümm. He says that others have made acquisitions in recent years and are occupied with integrating the firms into their own structures.

These sorts of purchases are supported by the strong dollar. Peter Kauschke, Expert, accounting firm PwC

They include the container shipping company Hapag-Lloyd, which entered into a merger worth billions with its Chilean competitor CSAV.

Large trucking company Dachser has also made extensive acquisitions in Spain. And there was restraint at DB Schenker, where parent company Deutsche Bahn has imposed an austerity program on the European freight market leader.

Fraport's bid for 14 Greek regional airports (purchase price: $1.54 billion) was Germany's only megadeal in 2015. Other major takeover battles were fought beyond the country's borders.

Meanwhile, North Americans helped themselves in Europe. The express service Fedex took over its Dutch competitor TNT, a deal worth $4.74 billion and approved last Friday by the European Commission with no conditions imposed.

The Canadian HNA Group is offering $2.82 billion for the provider of aircraft ground handling services Swissport.

French transport company Dentressangle went for €3.24 billion to its rival from the United States, XPO Logistics.

Of the 22 non-European bidders that made respective offers of more than $50 million for logistics firms on the Continent in 2015, half came from the U.S. and Canada.

“These sorts of purchases are supported by the strong dollar,” said PwC expert Peter Kauschke.

In the logistics sector, the mainspring continues to be the urge to grow bigger.

Further examples of the lure of synergy include the fusion of shipping companies CMA CGM (France) and NOL (Singapore) or Cosco and CSCL (both China). Pressure from the political leadership in Beijing also led to several mergers in the Chinese airline industry in mid-2015.

Moreover, many logistics companies expanded their range of services through acquisitions.

Japan's postal company spent $5 billion for the Australian trucking firm Toll Holdings, in order to copy Deutsche Post and grow in neighboring sectors. And, by purchasing the Australian firm Market Engine Global, the Royal Mail in Great Britain made its entry into e-commerce. And Deutsche Post has announced that it had acquired a minority interest in the French e-commerce and logistics specialist Relais Colis.

The most expensive acquisitions in the logistics branch during 2015 involved real estate. Last year, Kansai Airports (Japan), Fraport (Germany) and BBA Aviation (Britain) offered on average 4.4 times the annual revenues of the object of purchase. Seaports were even worth 6.3 times their annual revenues to prospective buyers. By comparison: In the ship market, which is suffering from excess capacity, they paid only 1.6 times the value of annual revenues.

Frankfurt brokerage company JLL confirms that the demand for logistics real estate is enormous, and has astounding consequences. Measured in terms of revenues, bidders paid almost three times as much in 2015 for harbors and airports as in the last 10 years. And during the same period, €4.1 billion – 14 percent more than the previous year – went into the purchase of German logistics real estate. Two-thirds of the money came from abroad.

“What is interesting here,” said JLL expert Willi Weis, “is that the location is not necessarily the main focus, but security concerning credit-worthiness and lifespan.”

The reason here is the background of the buyers. Because harbors and airports are considered to be secure investments, they are particularly attractive to pension funds. PcW says that these financial investors have “great amounts of capital they have to invest.”

But less and less money can be earned here.

“The enormous demand for logistical and industrial real estate on the part of national and international investors continues to put strong pressure on returns,” says a JLL report.

But no one believes this will lead to a reduction in the number of takeovers in 2016.

 

Christoph Schlautmann covers the logistics and waste management sectors for Handelsblatt. To contact the author: [email protected]