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Transport Fuel Costs Could Test M&A, Investment Bank Says
William Blair Executive Links M&A Outlook Among Transportation and Logistics Sectors to Pricing Power
Companies across the transportation, logistics and industrial sectors are still succeeding in passing higher fuel and input costs on to customers, according to Matt Zimmer, head of investment banking at William Blair & Co.
The support those prices are providing corporate deal flow, however, may not last if energy prices remain high.
“There will be a breaking point,” the bank’s global head of investment said in an interview with Bloomberg TV.
He added that transportation and logistics providers have rolled out fuel surcharges, while industrial companies, including those exposed to petrochemicals and packaging, are also raising prices.
“At some points these companies will have to absorb at least some or maybe all of the price inflation if that occurs,” Zimmer said.
RELATED: How Fuel Volatility Rewrites Freight Cost Models
Global dealmaking has gotten off to its strongest start to a year, reaching about $1.3 trillion in the first quarter, according to data compiled by Bloomberg. That momentum could fade if companies lose the ability to keep passing costs on to consumers, according to Zimmer.
Chicago-based boutique bank William Blair has 500 investment bankers with an average deal size of $500 million.
“We will do about 200 M&A deals a year with the transaction size of $200 million to $2 billion,” he said.
The type of deals getting done is also changing.
Activity is rotating away from software and technology toward essential, labor-intensive service, where demand is more resilient, said Zimmer. This includes deals in infrastructure, environmental services and heating, ventilation and air conditioning.
Bloomberg News this week reported an initial public offering by HVAC maker Madison Air Solutions Corp., which could raise as much as $2.23 billion.
Meanwhile, private equity investors — particularly in Europe and the U.S. — are showing a “pervasive appetite” for defense spending, Zimmer said after meetings with firms across Europe and the Nordics, where the dominant question was how to gain exposure to the sector.
