Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
JUNE/JULY 2012                                                                                                            ...
2 | Transport Perspectives / June/July 2012The Fourth Railway Package -A Game Changer?Gerard Whelan, Director – Regulation...
Transport Perspectives / June/July 2012 | 3of scale and the fact that most markets           At the same time, the arrange...
4 | Transport Perspectives / June/July 2012Real Competition                                  be allowed to act independent...
Transport Perspectives / June/July 2012 | 5M&A Outlook – Transport and Logistics 2012Steffen Wagner – Partner, European He...
6 | Transport Perspectives / June/July 2012Europe leads the way                                                           ...
Transport Perspectives / June/July 2012 | 7The new transport investors                                                    ...
Contact usDr Ashley SteelGlobal Chair - Transport and LogisticsT: +44 (0)20 7311 6633E: ashley.steel@kpmg.co.ukDaniel Lawr...
Upcoming SlideShare
Loading in …5
×

Transport Perspectives 2012

302 views

Published on

M&A outlook in transport and logistics industry

  • Be the first to comment

  • Be the first to like this

Transport Perspectives 2012

  1. 1. JUNE/JULY 2012 KPMG InternationalTransport PerspectivesThis edition contains two articles on topics which could Contentschange the landscape of European transport. The Fourth Railway Package -Gerard Whelan looks at the development of the EU’s Fourth A Game Changer?Railway Package, which has the potential to change completely Page 2the competitive landscape of European rail. M&A Outlook - Transport andSteffen Wagner and James Stamp examine the trends in the M&A Logistics 2012market in global transport and logistics during 2011. They look Page 5at the significant increase in transactions in Q1 2012 and makepredictions for the outlook for M&A in the remainder of the year.TRANSPORT PERSPECTIVES / June/July 2012© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  2. 2. 2 | Transport Perspectives / June/July 2012The Fourth Railway Package -A Game Changer?Gerard Whelan, Director – Regulation and EconomicsThe Fourth Railway Package, currently under consultation by the European Union, has the potentialto transform European passenger rail with the introduction of new legislation aimed at opening updomestic passenger rail markets to competition.Introduction others have made only minor changes. There have been successes and failuresThis article considers the options Despite a sustained effort on market with both franchising and open accessavailable to the EU, examining how liberalisation by the EU, the majority of operations in European passengerrail markets should be structured and European rail operations remain state and freight markets. The successesregulated to maximise efficiency, controlled. There is a lack of consensus have generally led to the developmentservice quality, and value for money. on the best way to encourage and of innovative services at lower cost.The result of the EU’s deliberations regulate competition. The failures have often resulted in theon liberalisation will transform the rail withdrawal of loss making operations. In a bid to remedy this, and create amarket for owning groups, governments single European railway area, the EU Competitive tendering has beenand regulators. For many, this legislation is committed to the introduction of a the preferred method to encouragewill drive significant changes, the fourth package of railway legislation. competition in passenger markets. Openoutcomes of which are uncertain. The package will ‘recast’ the access has been the preferred methodBackground requirements of existing legislation on to encourage competition in freightOver the last 20 years, the EU has track access to make it less ambiguous. markets. There have also been openintroduced three packages of legislation More importantly for rail owning groups, access operations in passenger markets,aimed at opening up domestic and it will introduce new legislation aimed including those operating alongsideinternational rail passenger and freight at opening up domestic passenger non-exclusive franchised services.markets to competition. The legislation markets to competition. The Fourth Commercial interest in open accesshas included requirements for member Railway Package is currently under appears to be growing:states to: consultation and is expected to be published at the end of 2012 or the • Regiojet introduced open access• Un-bundle the management of beginning of 2013. services on the Prague-Ostrava­ infrastructure from passenger and Haví㶣ov route in September 2011. freight operations. The method of competition – Open Access vs.Tendering • WESTBahn introduced open access• Establish non-discriminatory Competition is regarded by many as services between Vienna and infrastructure access charges and the best way to deliver better services Salzburg in December 2011. capacity allocation rules. to customers. It provides incentives • Deutsche Bahn introduced services• Establish an independent body to to invest to improve efficiency and between Frankfurt and Marsellies regulate competition. service quality. However, creating an (with SNCF) in March 2012 and is environment to stimulate competition planning to offer services between• Establish open access rights for within rail markets is not easy. It London and Frankfurt and London and international rail passenger services between member states. requires a degree of separation in Amsterdam. the management of infrastructureIn the July 2011 edition of ‘Transport and operations and the creation of • NTV started high speed servicesPerspectives’ we noted that between nine Italian cities in April 2012. non-discriminatory infrastructureimplementation of the legislation has, access rights. Once these rights The EU has traditionally favouredin reality, varied from state to state, with are established, competition can open access competition on profitableeach government adopting a different be encouraged via franchising (i.e. long distance routes and competitiveapproach. Some countries have made competition for the market), open tendering for unprofitable but sociallyquite radical changes to the ownership access (i.e. competition in the market) necessary regional and urban services.and regulation of their railways whilst or a combination of the two. However, the existence of economies© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  3. 3. Transport Perspectives / June/July 2012 | 3of scale and the fact that most markets At the same time, the arrangements This would involve continued effortsrequire a degree of public funding mean must avoid the danger of concentrating to address the remaining structuralthat the scope for on-track competition capacity within either the regulator or and strategic barriers that exist to theis limited. Greater progress with market the Ministry of Transport. This would risk establishment of a well-functioningliberalisation may therefore arise leaving the other without the necessary Single European Passenger Railwayfrom policies focused on competitive skills to function effectively. Area, including:tendering. Indeed, this may also prove The tendency to micro-manage markets • Technical interoperability barriersadvantageous from a cost perspective. should also be avoided. Regulation such as different track gauge widths,Allowing co-operation between the electricity systems and voltages, should promote competition ratherinfrastructure manager and the railway signalling systems, platform than try to manage it. It should provideundertaking as part of a longer franchise dimensions and operational rules. the right commercial incentives at theagreement may help reduce costs and outset and invoke measures to correct • Absence of an effective rolling stockalign incentives to invest. anticompetitive practice or abuse of leasing market, cross acceptanceThe Regulator’s Role dominance if required. It may therefore procedures for rolling stock andGiven the push to open up rail markets to be preferable to shift the focus of access to depots.competition, what sort of regulation will regulation from defining market pricesbe required to make those markets work? • Fragmentation of tendered contracts and quantities in advance, to allowing and variability in approach across markets to work and intervening onlyA key enabling factor for market regional tendering authorities. when necessary.liberalisation will be the establishment In addition, the last four years has seenof an independent regulator with a The principle of subsidiarity1 makes it significant consolidation in the Europeanclearly defined set of responsibilities. unlikely that there will be a common passenger rail market, including:The regulator must be independent approach to rail regulation acrossfrom the government, the infrastructure EU member states. However, the • Deutsche Bahn’s acquisition of Arriva.manager and railway undertakings. establishment of an Independent • The merger of Veolia and Transdev. Regulators’ Group (IRG – Rail) will helpRegulation is by its nature a political harmonise a consistent application • NS’ acquisition of Abellio.process and there are strong political of the regulatory framework. The • SNCF’s increasing its share in Keolispressures for direct government Group aims to facilitate the creation to 70%.intervention in rail markets. However, of ‘a single, competitive, efficient andfor competition to evolve, the regulator Monitoring will be required to ensure sustainable internal railways market’.should be free to act independently that the continued trend towards It currently comprises regulatory bodiesto provide a stable and predictable consolidation does not result in from 17 countries.environment for businesses to pursue increased levels of market power andtheir long-term commercial interests. Encouraging Competition anti-competitive behaviour. With the regulatory framework forThe regulator’s primary focus should market liberalisation in place, the EU,be to ensure that the infrastructure national Governments and tenderingmanager allocates track capacity in a authorities will all also have a key rolefair and efficient way. Other regulatory to play in ensuring that competition isresponsibilities, such as those delivered in the most effective way andsurrounding fares and service quality, that a level playing field for competitionshould be assigned to those who have is established.the required capacity to manage them. 1 The principle of devolving decisions to the lowest practical level© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  4. 4. 4 | Transport Perspectives / June/July 2012Real Competition be allowed to act independently from Private rail owning groups shouldWhere competition has been government, and the operators must be continue to maintain a keen insightsuccessfully promoted, it has largely given sufficient freedom to incentivise on market developments in thebeen via competitive tendering, them to be competitive and deliver high EU to position themselves for thealthough there have been some open quality service. opportunities it will bring. State ownedaccess services in Britain, Germany, railways must ensure that they are Finally, we must note that an absenceAustria, Sweden and Italy. adequately prepared for possibly the of competition does not necessarily lead most radical change in their history.This is the model that is most to declining standards on railways inappropriate for allowing effective Europe. Many rail passenger and freightcompetition, whilst ensuring the social markets experience strong cross-obligations of the railway can be met. modal competition. This will continue to incentivise rail operators to provideRegulation should be at a level that is a quality service at low cost, regardlesshigh enough to ensure safety, value for of the specific arrangements in themoney for the taxpayer, and a minimum rail market.level of service provision. However, forthe market to evolve and for competitionto be free and fair, the regulator must© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  5. 5. Transport Perspectives / June/July 2012 | 5M&A Outlook – Transport and Logistics 2012Steffen Wagner – Partner, European Head of Transport M&AJames Stamp – Partner, M&ATransport transactions in 2012: This report looks at the transactions exception, and that the recovery fromStepping up a gear landscape in transport and logistics in the 2009 post-recession low pointTransport and Logistics (‘T&L M&A ’) 2011. It examines the driving forces appears stable.activity hit a four-quarter high in the first behind these trends, which can be Indeed, the first half of 2011 recorded anthree months of 2012, with the characterised as follows: increase in the total value ofunderlying drivers of transactions • Average transaction values lower than transactions on the second half of 2010.aligning to fuel US $27 billion of .9 2010 (particularly in North America) The second half decrease reflects thecompleted and announced transactions. reflecting the distorting impact of the increased uncertainty and reluctance ofThe emerging trends suggest that 2012 US $36.7 billion Burlington Northern investors in the wake of the debt crisisis poised to be a year for accelerating Santa Fe deal in prior year, and the in the European Union.global M&A activity in the transport and impact of “distressed M&A” In value terms, 2011 average transactionlogistics sector. We think that activity particularly in H211. size was lower than 2010. Althoughwill be driven by four factors: • Strong growth in EMEA fuelled by a there were large strategic transactions• Significant war-chests built up during number of landmark transaction in the first half of 2011, more small the economic crisis are now ready for including the divestment of TNT transactions and bailouts (“distressed deployment. Express for US $7 billion. .2 M&A”) were observed in the second half of the year, depressing average• Strategic and financial investors • EBITDA and Sales multiples values for the year. looking to capitalise on emerging increasing for the third consecutive trends in high growth niche markets year, as EMEA multiples converge. Despite the drop in total transaction including e-commerce, time and values compared to 2010, the mergers Transactions Market in 2011 – temperature sensitive delivery, and and acquisitions market for transport Reduced speed in the second half secure courier requirements. and logistics remains buoyant. In 2011 As graph 1 shows the number of M&A transactions totaled US $52.1bn:• A need for scale and consolidation in transactions in 2011 remained at a twice the equivalent figure in 2009. traditional T&L segments including post, similar level to the previous year. This passenger transport and shipping. demonstrates that 2010 was not an• Continued appetite from infrastructure investors for quality airport, port, and road assets. Graph 1 – Transactions in transport and logisticsM&A activity has traditionally been a 60 600barometer of confidence, and on this 544 552 525basis the prognosis is good. 2011 and 484 496 50 449 5002010 transaction levels (measured by 439value and number) exhibited a return to 417 Transaction value (US $bn) Number of transactionsnormality over crisis-hit 2009. Although 40 400M&A levels in the second half of 2011were impacted by sovereign-risk related 30 300financing uncertainty, the new-year has 48hit a higher gear. 20 200 32 31 31 34Although short-term factors such asfurther fuel-price shocks and debt­ 10 18 100market jitters may influence the timing 12 14of activity, we think that the imperatives 0 0 H1 H2 H1 H2 H1 H2 H1 H2for change are aligned to drive activity in 2008 2008 2009 2009 2010 2010 2011 2011the medium term. Transaction value (US $bn) Number of transactions Source: Thomson Financial Database© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  6. 6. 6 | Transport Perspectives / June/July 2012Europe leads the way These include: On closer observation, however, thereThe drop in total transaction value in the are large differences between the • The divestment of the TNT Expresstransport and logistics sector in 2011 individual regions. In EMEA, for branch for US $7.2bn.was most pronounced in the regions of example, the valuation levels areAsia-Pacific (ASPAC) and North America, • The investment of French sovereign particularly high. A trend towardas shown in Graph 2 (right). wealth fund, Caisse des Depots & increasing valuation levels can also be Consignations of 26.3 percent in La seen in North America and ASPAC,In North America the number of Poste SA, with a value of US $2.1bn. albeit somewhat less dramatic thantransactions was stable, however the Europe. Despite an increase in total dealtotal transaction value declined to US • The sale of 38 percent in equity of the value in Latin America, the valuation$4.7bn from US $45bn in 2010. 2010 Brussels airport to Ontario Teachers levels are decreasing.was exceptional in North America, due Pension Plan for US $1.7bn.to the purchase of Burlington Northern In North America and EMEA it can be Strong valuation levels suggestSanta Fe by Berkshire Hathaway with a seen that in 2011, the EBITDA and EBIT positive outlooktransaction value of US $36.7bn. In multipliers have converged so that they Valuation multiples of transactions (theASPAC there was also a (less dramatic) are now almost identical to each other. ratio of enterprise value to sales, anddecrease in transaction value. In Latin This shows that in 2011, a number of the EBITDA) during the last three years haveAmerica the transaction value grew key transactions in these regions related increased.significantly, albeit from a low base. to asset-light companies. Valuation levels are now almost at theHowever the major story is the increase levels prior to the outbreak of the financialin transaction value in the Europe, crisis in 2008. This demonstrates theMiddle East and Africa (EMEA) market. increased confidence of investors in theTransaction values in 2011 were US transport and logistics sector, and the$30.1bn in comparison to US $12.7bn in renewed appetite for mergers and2010. The number of transactions in acquisitions. Graph three (right)EMEA was very similar to 2010, demonstrates this.indicating a number of landmarktransactions in 2011.Graph 2 – Transactions by region Graph 3 – Valuation multipliers for transport and logistics M&A 14.0 100 1,200 1,056 1,067 90 989 999 12.0 964 1,000 80 855 10.0 70 784Transaction value (US $bn) 800 Number of transactions 60 8.0 Multiple (x) 50 600 6.0 12.2 40 10.9 11.3 400 30 9.0 9.3 4.0 7.9 20 200 2.0 10 0.8 1.2 1.3 0 0 0 2005 2006 2007 2008 2009 2010 2011 2009 2010 2011 North America Latin America EMEA ASPAC EV/Sales EV/EBITDA EV/EBIT Number of transactionsSource: Thomson Financial Database Source: Thomson Financial Database© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  7. 7. Transport Perspectives / June/July 2012 | 7The new transport investors Outlook 2012: On the runway? financing will be a key factor in theThe final key conclusion from 2011 is The first quarter of 2012 showed outlook for 2012.that Private Equity businesses are growing M&A activities in the transport M&A Appetite of strategic investors:showing renewed appetite for the sector compared to the second half of The M&A appetite of transport andtransport and logistics sector. 2011. This can be clearly demonstrated logistics firms is often correlated with in graph 5 (right).Historically the market was unattractive their debt capacities. This is higher thanto financial investors, due to Overall, 177 transactions with a total in previous years. In particular,comparatively low growth and small value of US $8.2bn have been companies in the Logistics and Expressmargins. However, from 2006 financial completed. A further 147 mergers and segments currently have deep pocketsinvestors started to show strong acquisitions with a total value of almost and stand ready for more strategicappetite for the sector. Private Equity US $ 20bn have been announced in the acquisitions.has been interested niche markets with first quarter of 2012 representing a This has been recently evidenced byhigh margins and growth opportunities, significant increase on 2011. UPS’ acquisition of TNT Express.and high entry barriers. Companies in Again, Europe has been the centre ofthose niche markets are typically The key sectors to watch over the M&A activity, with the largest numberlogistics companies active in the coming year are shipping and logistics. of transactions completed in Q1.transport of time-sensitive and In the global shipping market, thetemperature controlled products. To make this strong start to FY12 outlook for the next year is bleak, with sustainable, three key factors must overcapacity expected to remain.These include food, medicines, be met.chemical products or hazardous freight. As a result, there is likely to be further Confidence in sustainable economic need for consolidation throughAgainst the general trend total recovery: This depends mainly on distressed M&A, though the transactiontransaction value traded by financial continued market trust in the solutions sizes will be reasonably small.investors actually grew in 2011 to the European debt crisis. Should thecompared to 2010, though still remains economic outlook remain stable, The logistics market, particularly inlow compared to 2006-2008. business activity could improve as early Europe, remains fragmented. PrivateTransaction value by investor type is as the second half of 2012. equity investors looking to invest inshown in graph 4 (right). niche markets, and the ongoing need for Investment pressure on financial consolidation, are likely to drive M&A investors: The pressure on financial activity in this sector. investors to deliver strong returns is high, following a disappointing year in Should the trend established in Quarter 2011. However, many Private Equity 1 continue, 2012 could be an exciting firms are finding it difficult to attract year for transport and logistics. financing, and the ability to attract newGraph 4 – Transaction value by investor type Graph 5 – Quarterly deal values in transport 100 90 30 80Transaction value (US $bn) 25 70 Transaction value (US $bn) 3 60 20 20 50 15 3 40 3 30 10 20 5 20 14 12 5 10 8 7 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Financial investors Strategic investors Completed transactions Announced but not yet completed or withdrawnSource: Thomson Financial Database Source: Thomson Financial Database© 2012 KPMG LLP a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member ,firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.
  8. 8. Contact usDr Ashley SteelGlobal Chair - Transport and LogisticsT: +44 (0)20 7311 6633E: ashley.steel@kpmg.co.ukDaniel LawrenceGlobal Executive - Transport and LogisticsT: +44 (0)20 7694 8348E: daniel.lawrence@kpmg.co.ukDr Gerard WhelanDirector - Regulation and Economics,KPMG in the UKT: +44 (0)20 7694 1595E: gerard.whelan@kpmg.co.ukDr Steffen WagnerPartner, European Head of Transport M&A,KPMG in GermanyT: +49 69 9587 4102E: steffenwagner@kpmg.comJames StampPartner, M&A,KPMG in the UKT: +44 (0)20 73114418E: james.stamp@kpmg.co.uk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Printed in the United Kingdom. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.www.kpmg.com RR Donnelley | RRD-270377 | June 2012 | Printed on recycled material.

×