UK supply chain management sees bumper M&A activity but low value

17 August 2018 4 min. read

In 2017, deal volumes in Europe (including the UK and Ireland) for merger and acquisition activity in the logistics and supply chain management sector represented 54% of the market’s global M&A activity for the year, with 140 completed sales. The UK has enjoyed a similarly explosive opening to 2018, with a boom in deals completed in the year’s first half – however value has fallen drastically.

Simply put, a supply chain is a system of organisations, people, activities, information, and resources which are involved in moving a product or service from suppliers to the customer. In line with most other industries, the sector is in the grip of a sustained period of change, as supply chain experts wrestle with the concept of digital transformation in order to both streamline and secure their operational processes. As a result, logistics and supply chain management companies are in heavy demand in terms of M&A at present, particularly in the UK.

A new report from professional services firm BDO has found that logistics and supply chain management have seen a major drop in M&A value since the turn of the year, despite a boom in the number of deals completed. Authors Jason Whitworth and James Mannion found that the 350 transactions confirmed in the second quarter of 2018 represent the highest level of deal volume in the sector since the first quarter of 2016, however their collective value of around £50 million represents a drastic reversal of the trend which had seen value outstrip the number of deals by some distance in the past two years, with investors in multiple sectors being said to value quality over quantity.

UK & Ireland deal volume & value 2015 - 2018 (Q2)

While BDO, the UK’s sixth largest auditing and advisory firm, said that the results showed M&A activity continued to benefit from positive sentiment for assets in Britain’s logistics supply chain management industry, domestic deals accounted for over half of the transactions seen in the period, perhaps indicating the impact Brexit may have had on the sector’s activity. Fluctuating prices had seen record demand across multiple sectors, as a devalued pound enabled heightened levels of foreign investment following the 2016 referendum. However, while those prices presented a bargain at the time, with the UK expected to maintain access to its largest trading partner, the European Union, a faltering negotiation process leaves that in doubt, with Britain rapidly approaching a dreaded ‘cliff-edge’ scenario, often termed as No Deal.

Should the UK walk away from the EU with no agreements in place to avoid large world trade rules tariffs on imports or exports, it would be seen as problematic for an industry which has previously been able to rely on seamless continental trade. As a result, for the first time after the 2016 referendum, the majority of demand for M&A in the supply chain management sector has come from British entities. While EU interest has predictably fallen in this case, however, the driving force from this change has actually been a drop in demand from the US.

UK & Ireland sales by buyer region

American investment accounted for a healthy portion of the sector’s activity in 2016, raising as recently as 2017 to around 30% in line with the previously mentioned market trend driven by the weak pound, US interest in the deals of this kind has shrunk in 2018 to less than 10%. While this may be because of a large spike in domestic demand, it is also likely linked to the souring relations with continental Europe, which US businesses previously viewed the UK as a stepping stone to reach. Alongside a boost in domestic interest, M&A activity in the logistics scene of the UK also saw a booming private equity presence.

The period also showed continued interest from private equity. 25% of the deals completed saw private equity investment, while a third saw exits. This included the £116 million buy-out of the Delivery Group by the group’s management team of The Delivery Group, which BDO advised on, from Next Wave Partners. The transaction represented an Enterprise Value of £116 million and was funded by debt with private equity firm Next Wave Partners retaining a minority interest.

Related: The 25 companies with the best supply chain and logistics practices.