In line with global M&A trends, transportation dealmaking suffered from the initial impact of the global COVID-19 pandemic, which forced companies to focus on their own survival rather than growth through acquisitions.
But toward the second half of the year, deal activity made an impressive recovery. Quarterly deal value increased throughout the year to reach US$34.8 billion in the final quarter—the highest quarterly deal value since 2017.
M&A becomes survival tactic for airlines
Stay-at-home orders and border closures across the globe paralyzed the airline industry in 2020, as a sudden and unexpected drop in passengers forced companies to focus on survival. Even as some economic indicators have shown positive signs, air travel remains muted at the start of 2021—the number of scheduled flights worldwide in the first week 2021 was down by 43.5% compared to the previous year, according to Statista.
Yet dealmaking within the hard-hit airline industry is showing signs of a comeback. The largest deal of 2020—Korean Air Lines’ announced acquisition of a majority stake in domestic rival Asiana Airlines for US$8.4 billion—took place in the final quarter. The deal represents an attempt at a way out of the crisis through long-term sustainable growth.
If approved, the deal is expected to spark further consolidation among South Korea’s low-cost carriers (LCCs). The expectation is that the country’s three LCCs—Jin Air, Air Busan and Air Seoul—will likely merge into one entity.
The US$2.4 billion acquisition of Virgin Australia Holdings by US buyout firm Bain Capital and QIC, the investment company owned by the state of Queensland, is another sign of growing investment in the industry. The sale of the airline, which filed for bankruptcy in April, attracted attention from a range of bidders, including sovereign wealth funds, other international carriers and a number of private equity firms.
UK-based Signature Flight Support in January accepted a US$4.63 billion offer from Global Infrastructure Partners, one salvo in a bidding war also involving PE groups Carlyle Group and Blackstone. The prospect of an acquisition has more than doubled Signature’s share price since December 2020.
Delivery services boosted by pandemic
An increase in online shopping has seen demand for courier and express delivery services soar over the course of the year, with the industry expected to gain US$258.1 billion of global annual sales by 2023, according to a report published by The Business Research Company.
Increased demand has prompted private equity players to take interest in the delivery services industry. In August, US buyout firm Advent International agreed to acquire a 75% stake in delivery business Hermes’ UK business and a 25% stake in its German business for US$1.2 billion.
The deal allows German ecommerce firm Otto Group, previously the sole shareholder in the delivery company, to access Advent’s capital and expertise for further growth. Hermes UK has recently announced its plan to hire an additional 10,500 employees to meet the spike in demand seen in 2020.
In another sign of the effect of the stay-at-home economy, ecommerce giant Alibaba acquired a further 12% stake in YTO Logistics—China’s largest logistics service provider—for US$956 million. The deal, which sees Alibaba more than double its previous stake in the company, consolidates the ecommerce giant’s position in China’s highly competitive express delivery sector.
Toll roads remain long-term bet for investors
Toll road operators continued to attract interest from both corporate and PE buyers in 2020. In April, APG Asset Management, the National Pension Service of the Republic of Korea and Swiss Life Asset Managers formed a consortium to acquire an 81.1% majority ownership stake in Portuguese toll road operator Brisa-Auto Estradas de Portugal. The US$4.5 billion transaction—the third largest transportation deal of the year—completed in October, following approval from European regulators.
And in December, Canada Pension Plan Investment Board (CPP Investments), AustralianSuper and UniSuper announced their intention to acquire a 50 percent stake in US toll road business Transurban Chesapeake for US$2.1 billion.
While the pandemic led to a reduction in Express Lanes traffic of around 80 percent in April compared to the previous year, Transurban has seen traffic increase gradually through the remainder of 2020, with November traffic down by 39 percent. It appears that even despite the disruption caused by COVID-19, toll road assets remain a stable long-term investment for dealmakers.
Outlook
The experience of businesses across the transportation sector has been mixed in 2020. While the airline industry suffered an immediate blow from sudden global travel restrictions, delivery firms have received a boost in sales following a surge in online spending.
Global travel restrictions and societal lockdowns are set to remain in place throughout the first half of the year, despite the gradual rollout of the vaccines. Against this backdrop, M&A is a crucial tool to rebuild companies that have managed to survive the initial shock of the pandemic.
For those companies fortunate enough to have seen revenues increase, M&A will be used to boost capabilities and meet growing consumer demand. These evolving trends look set to drive further dealmaking within the sector over the coming year.