Despite the business disruption caused by the COVID-19 pandemic and the uncertainty surrounding the UK’s future relationship with the EU, there is reasonable optimism for mergers and acquisitions (M&A) in logistics over the next 12 months – at least according to the UK Logistics Sector M&A Index 2020.
It’s not all good news though, as the survey also found that almost 44% of companies have been forced to cut costs by running leaner operations and streamlining staff during the pandemic.
To help businesses understand the outlook for M&A activity across the sector and understand the challenges facing the industry, business group Logistics UK, in partnership with leading accountants, tax and business advisors Carter Backer Winter LLP (CBW), commissioned the aforementioned survey.
The report provides an overview on expected trends in M&A, including valuations, and delves into some of the most important issues facing companies in the sector, particularly in light of the Covid-19 pandemic and Brexit.
The index number in this first survey is 45.4, which suggests that M&A will continue to form a key part of companies’ strategies as operators seek to build resilience, continue to grow and diversify through Covid-19 and beyond.
The survey finds the sector is showing resilience and an ability to adapt to changes in customer behaviour, which is reflected in an average optimism score for the next 12 months of 6.3 out of 10.
In response to the difficult trading conditions caused by the pandemic, the survey finds that almost 44% of companies have been forced to cut costs by running leaner operations and streamlining staff. Many operators are facing ongoing pressures on both cashflow and margins. This is reflected in profit expectations: asked about an anticipated change in profit for 2020, the median figure among survey respondents was a drop of 2%. The survey also believes that falling profitability may hamper logistics businesses’ ability to invest in new technology at a time when, as comments from respondents show, will be critical if they are to meet the changing demands and expectations of customers.
The further into the future we look, the more optimistic logistics companies are
Asked to rate how much optimism logistics companies have regarding the outlook for the sector over the next 12 months, on a scale of 1-10, the average score among our survey respondents was 6.3. Encouragingly, more than a quarter of operators put their optimism level at 8 or more out of 10.
“However, it’s clear that levels of optimism depend to a large extent on the sectors to which operators are most exposed, with those focused on e-commerce, food & drink, healthcare, DIY, parcels & express and B2C generally having done relatively well, while others have struggled. Many respondents to our survey indicate that as operators compete for reduced volumes, prices are being driven down and margins squeezed. Underlining concerns about margins, when asked to estimate the expected change in their profits for 2020, the median figure from our respondents was a fall of 2%” – the paper states.
Against this backdrop, many of the survey respondents raise the prospect of insolvencies and redundancies among some more exposed logistics companies, especially those dependent on industry sectors that have been worst hit by Covid-19. As one respondent puts it: “If a customer shuts down their operation, how will the business make its money?”
Staff and driver shortage
The perennial issues of staff recruitment and a shortage of skills are also highlighted in the survey, with a combined total of more than 20% of respondents citing recruitment of staff with the right attitude and skills as the main impediment to achieving business objectives in the next 12 months.
“Driver shortage – another ongoing challenge for the sector – has been exacerbated by the non-availability of drivers through either sickness or self-isolation during the pandemic, according to respondents’ comments” – the survey adds.
And some last-mile operators that have recruited and trained drivers to meet increased demand during lockdown have found it difficult to retain staff as the economy picks up.
>>> Check out the full report HERE <<<
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