In brief - An overview of 2019 M&A activity in Australia and outlook and key areas of interest for the industry in 2020
Readers will perhaps be unsurprised that global deal-making contracted somewhat in 2019, given deep economic uncertainties, that trade war and the resulting risk of global recession, and the general reduction in Chinese outbound investment.
In Australia, however, and more specifically in the transport and logistics industry, we have seen a consistent level of M&A activity throughout 2019, driven in large part by macro themes such as the inexorable consolidation of a highly fragmented market and the availability of historically cheap finance.
At the ASX-listed level, 2019 has seen a sobering decline in IPO activity. In our view, that theme is set to continue into 2020 although we see the medium-term IPO outlook as promising.
However, those already-listed entities in the transport and logistics space were nevertheless relatively active in 2019.
Although by no means exhaustive, we note that:
- Qube Holdings, through its logistics subsidiary, completed the acquisition of integrated logistics player Chalmers for an amount in excess of $50 million,
- WiseTech Global, the highly acquisitive Australian-listed global logistics software group, acquired Containerchain (which provides solutions for container depots, road transporters, container terminals, warehouses, shipping lines and cargo owners). In addition, WiseTech made a slew of offshore acquisitions, in Norway, Sweden, the US and South Korea, to name a few, and
- Qantas acquired a 19.9% stake (with a view to taking a majority position in due course) in listed player Alliance Aviation Services for "exposure to the resurgent resources charter market" for around $60 million, notwithstanding the ACCC's ongoing investigation into the effect of the acquisition on competition.
On a global level, the Swiss-headquartered logistics giant Kuehne + Nagel launched a US$50 million global investment fund, through its joint venture with the Singaporean government-owned Temasek Holdings, ostensibly targeting logistics and supply chain disruptors, particularly those in the artificial intelligence and digital logistics space.
In the private M&A market, Australia's largest privately owned shipping operator, Sea Swift, was acquired by Queensland Investment Corporation (owned by the Queensland Government) for a sum of around $300 million. QIC also holds a significant stake in the ownership of the Ports of Melbourne and Brisbane.
In late October, the Australian Financial Review flagged global shipping giant Mediterranean Shipping Company's acquisition of WA-based Integrated Container Logistics, an acquisition which might be "indicative of such [shipping container lines'] intention[s] to expand from their on-water roots and into landside logistics".
And Silk Contract Logistics—the wharf cartage, warehousing and distribution services provider—continued its strong acquisition spree by acquiring Rocke Brothers, a large Victorian-based wharf carrier, to go along with SCL's prior (recent) acquisitions in Brisbane and Sydney. It is no wonder that informed commentators have pegged SCL as a likely investigator of a sharemarket listing in 2020.
The road ahead
Certain forecasts based on early-stage global due diligence activity yield an expectation of year-on-year M&A growth globally of up to 10% in the first half of 2020.
In Australia, however, at least in the short term, we expect any growth to be subdued. The transport and logistics industry in 2020 is not immune, although (at least at the smaller deal level), we expect themes of consolidation, cheap financing and emerging technologies to be contributing factors to any growth.
Our expectation for 2020, as it has been for a couple of years now, is that the strongest pipeline in the transport and logistics M&A market is in the $50 million to $300 million range.
Beyond pure M&A though, key areas of interest for the industry in 2020 from our perspective include at least the following:
- Use of the revamped misuse of market power provision in the Competition and Consumer Act 2010 (Cth): Qube Holdings has alleged a breach of that provision by the Port of Newcastle (regarding the ownership and operation of quayside cranes at the Port), and the ACCC has instituted proceedings against the government-owned TasPorts (alleging a breach by TasPorts in its treatment of a new entrant to the Tasmanian marine pilotage and towage market, Engage Marine). In both instances, they are the first cases of their kind under the amended provision.
- Proposed class exemption for ocean liner shipping: The ACCC has released its discussion paper, and is set to consult industry, on the repeal of Part X of the Competition and Consumer Act 2010 (Cth) and the form and substance of a replacement block (class) exemption for liner shipping agreements (that meet a minimum standard of pro-competitive features) which might otherwise breach the competition provisions of Part IV of the Act.
- Stevedores' "Infrastructure Fee" fallout: With government Ministers now publicly rebuking stevedores for the recent spike in their so-called infrastructure surcharges, industry will be monitoring the situation closely with the possibility in NSW for investigations into the impact of the surcharges, and Victoria considering the regulation of prices and access at the Port of Melbourne.
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