European Logistics Sector Becomes Hot Spot for Deals

WSJ - Deal activity Europe's logistics sector is heatg up, as United Parcel Service Inc.'s purchase of smaller rival TNT Express NV last month demonstrated that players this dustry are startg to spend.

The €5.16 billion ($6.75 billion) move by UPS to ramp up its operations Europe through the largest deal its 105-year history has created a parcel shipper ith more than $60 billion annual sales and places considerable pressure on arch rival FedEx Corp.

FedEx earlier this month bought privately held Polish shippg pany Opek order to push its European expansion plans. Fancial details of the transaction eren't disclosed, but FedEx said the purchase gives its express-shippg busess aess to a ground ork Poland ith an estimated $70 million annual revenue.

Analysts said the recent deal activity suggests that cash-rich panies the logistics sector are lookg to put their money to ork. Investment bank Man Stanley noted that prospects for an creased level of merger and acquisition activity across all sectors are reasonably good Europe. They cite healthy balance sheets and cash flos for European panies, return on equity that is above historical averages as ell as higher share prices.

And, aordg to analysis by advisory firm KPMG, the bed value of all pleted and announced deals across the globe the first quarter of 2012 totaled $27.9 billion, larger than any of the previous four quarters. KPMG's European head of transport transactions, Steffen Wagner, believes Europe is set to be at the center of M&A activity the highly fragmented logistics sector.

As global trade and particularly e-merce contues to crease, and supply chas bee ever more plicated, the role of logistics specialists is creasgly more important. "Opportunities [for deals] ill be temperature-sensitive transport and food logistics, pharmaceutical and chemical logistics and the transport of hazardous products," Mr. Wagner added.

With that md, money managers advise vestors to seek exposure to the logistics sector, pickg panies that are best placed to offer attractive returns and seek strategic acquisitions this year.

Tim Stevenson, manager of Henderson Global Investors' pan-European equity fund, said he ons shares of German pany Deutsche Post AG, DPW.XE -0.46% operator of DHL, the orld's largest air-courier pany, Siss logistics group Kuehne & Nagel KNIN.VX -9.49% and Danish transport and logistics giant A.P. Moller-Maersk AS. All trade on lo valuations ith high, sustaable yields, he said.

"The stocks tend to perform as a multiple of economic groth, as vestors have bee creasgly cautious on the European region and these stocks have tended to be eak. Hoever, hat those vestors fet is that these panies have global exposure here e thk economic groth ill rema robust," he said.

He noted the Asian region, here Deutsche Post's DHL busess has a roughly 40% market share logistics. "In addition, [these panies] recent years have sold off noncore operations to create more profitable entities. For these reasons, e vie the stocks as good vestments."

Like Mr. Stevenson, David Moss, F&C Asset Management's director of European equities, also ons Deutsche Post stock. Mr. Moss said that as one of the four remag global logistics and supply-cha players, DHL is a major ner ith major vestment emergg markets, meang that risg volumes ill lead to higher returns.

"Deutsche Post is also very ell placed domestically for the groth parcel traffic from e-merce groth," he said.

Sce the start of the year, shares all three panies have risen more sharply than the overall market. Deutsche Post has gaed 18%, Kuehne & Nagel has added 13% and Moller-Maersk is up 9%.

All three could rise further this year, but the outlook is largely dependent on a bation of factors. These clude economic groth, M&A appetite of strategic vestors and pressure from shareholders to vest the cash or return it to them, said KPMG's Mr. Wagner.