Analysis: transport giants devour the competition

Transport companies are on the brink of a mergers and acquisitions boom, according to analysis by KPMG, which says cheaper debt, higher fuel prices and the drive for global scale are combining to make big deals irresistible.
According to figures from Dealogic, the number of deals in the global transport and logistics sector rose 13 per cent to 892 in 2010, compared with just 3 per cent in the overall market. The value of deals jumped 224 per cent to $892bn (£553bn) last year.
Government austerity programmes will also drive deals. Last year, the British government sold the High Speed 1 railway line. It is now pressing ahead with plans to sell Nats, the air traffic control service.
Throughout Europe, governments are also liberalising bus and rail services, with cash-strapped local authorities seeking private investors. The big four British transport groups – Stagecoach, FirstGroup, Go Ahead and National Express – are competing for some of these contracts, as are state-owned transport companies, such as Deutsche Bahn, which are being forced to look further afield.
Deutsche Bahn’s £1.59bn takeover last year of Arriva, the UK bus and rail operator, was, in part, motivated by this. So is the high number of foreign bidders seeking to win the London to Glasgow West Coast rail franchise in 2012.
Douglas McNeill, analyst at Charles Stanley, sees UK bus and rail operators as potential forces in any dealmaking surge, and not just in Europe. Although they have big businesses in the US, they have yet to make serious inroads into emerging markets in Asia or Latin America.
Moir Lockheed, outgoing chief executive of First Group, speculated as much in October when he said the company could move into India, where the transport infrastructure is sagging under the weight of the increasing population.
But perhaps the biggest driver towards consolidation will be the rocketing oil price and political uncertainty in the Middle East. In the wake of the 2008 price spike, Delta merged with Air Northwest, while BA agreed to merge with Iberia of Spain.
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