Top 4 forwarders that may be ripe for M&A activity in 2018

Although mergers and acquisitions (M&A) in the 3PL community so far in 2017 were not quite as numerous as they were in 2016, many airfreight industry analysts say the current boom times for air cargo should make 2018 another banner year for consolidation in the still fragmented freight forwarding business. Just two months ago the highly anticipated mashup of CEVA Logistics and Geodis fell through after the French railway group, SCNF, which owns Geodis, said it was undergoing a major reorganization and had ended negotiations for the merger. However, in early September, U.S.-based 3PL C.H. Robinson successfully took over Canadian forwarder Milgram & Co. in a move to bulk up its surface network and customs brokerage capabilities. Also, recent successful mergers, such as XPO Logistics/Con-way , GEODIS/OHL and DSV/UTi , have proven to give logistics firms larger networks and greater market share. Momentum for M&A in the forwarding space is only expected to build in the coming year, according to a report from British consulting firm Transportation Intelligence, which said the top 10 forwarding firms accounted for 43.5 percent of the industries US$141 billion global revenue in 2016, adding that there was still more room for consolidation. So, which firm will be the next target in 2018? The answer is nearly impossible determine right now, but this list of four 3PLs on the next few pages have sparked a lot of conversation among industry analysts: Panalpina – Basel, Switzerland As one of the largest forwarders in the world, listed as No. 5 in Air Cargo World ’s latest Power 25 rankings , the Swiss giant has still been rumored to be a takeover target, mostly because it has been one of the most vulnerable of the top 25 firms to the rise in freight rates this year, stemming from higher demand. Earlier this year, a report from investment banking firm Jefferies International called Panalpina an “increasingly likely takeover target,” adding that “a restructuring-driven earnings recovery has so far failed to materialize, with the operating performance further deteriorating after the strategy update,” by the 3PL’s CEO, Stefan Karlen, who joined Panalpina in September 2016. In the third quarter of this year, rising staff costs reportedly ate into Panalpina’s profits, which fell from $32.9 million to $30.1 million over the three-month period, despite a 13 percent rise in revenue, year-over-year. While performance has improved, this year, with airfreight volumes up 8 percent, y-o-y, in first nine months of 2017, it was less that half of the 19 percent gains reported by its Swiss rival, Kuehne + Nagel over the same period. CEVA Logistics – Hoofddorp, Netherlands Yes, the CEVA-Geodis deal did fall through in September, but the Netherlands-based 3PL still remains a target – and has been one for a number of years – because of the more than $2 billion debt it still carries, despite improvement in productivity and a reduction of losses. In the third quarter of 2017 , CEVA reported free cash flow of $9 million, but also had overall losses of $22 million. However, the red ink flowed much less than in Q3 of 2016, when free cash flow plunged $50 million into the red. CEVA’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached $85 million in Q3. For the year to date, adjusted EBITDA was $209 million, up $22 million in constant currency over the prior year. Some of this improvement is also coming from the rise in freight rates and weakness in the U.S. dollar, which could make CEVA a better deal for potential buyers in Europe. Hellmann Worldwide Logistics – Osnabrück, Germany Just by virtue of its position as No. 9 on the Power 25 freight forwarder listings, Hellmann Worldwide has often been mentioned as an M&A possibility for a company looking to enter the German market or simply grow its forwarding market share. However, it should be noted that Hellmann has recently completed a “realignment and reorganization,” which the company said adapted its “legal organization to its continuous expansion and changing market requirements.” Since Aug. 1, the forwarder has been divided into three divisions – Air & Sea, Road & Rail and Contract Logistics – which operate as legally independent subgroups. “The new structure creates greater flexibility in the individual product areas facilitating more rapid reactions to market trends across countries,” Hellmann said. “At the same time, customers will now be offered uniform global solutions along the entire supply chain, which will further optimize service quality.” Whether this decentralization means that one or more of the divisions might be acquired on their own is still unknown. Damco – The Hague, Netherlands For most of the first half of this year, this logistics arm of Maersk has been mentioned frequently as an acquisition target. While most of the forwarding industry was on the rise for most of 2017, the Damco division suffered a loss of $8 million in the first half of the year, compared to $12 million in net revenue during the period in 2016. Maersk was also hit with the infamous “Petya” cyberattack in June 2017, which cost the maritime company an estimate $250 million to $300 million in the third quarter. Damco was not left unscathed in the ransomware attack, and was “negatively impacted by a decline in freight forwarding margins,” which added up to a $6 million loss in Q3. Still, Q3 showed some glimmer of hope for Damco, with revenue rising by 8.3 percent, year-over-year, to $688 million, while its supply chain management volumes rose by 5 percent and airfreight volumes remained flat. Performance has improved slightly, but Maersk may still be eager to cut its expenses, so Damco may still be ripe for plucking next years.

Top 4 forwarders that may be ripe for M&A activity in 2018

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