• Edinburgh Airport likely to be on the block in 2024
• Shipping and port operators look to diversify

COVID-19 is finally loosening its grip on the transport sector. Aviation is coming back to life and this could lead to M&A activity in 2024, dealmakers said.

Several segments of the aviation space are likely to experience higher activity in 2024 due to advantageous tailwinds, according to Olga Petrovic, head of asset finance and co-head of transport at Linklaters. These include aircraft leasing and supply chains relating to aircraft maintenance, she added.

One company to watch in the aviation space is Travelopia of the UK, which creates travel experiences and is backed by KKR [NYSE: KKR]. It has a score of 38 out of 100, according to Mergermarket‘s Likely to Exit (LTE) predictive algorithm.* The company was flagged for a sale in 2020, but this went cold during the pandemic. “Revenge travel” is helping the sector, which is expected to see a wave of deals next year.

Airports are also likely to feature in next year’s pipeline. In November, Ferrovial [BME:FER] announced it would sell 25% in FGP Topco, parent company of UK-based Heathrow Airport Holdings, for GBP 2.37bn (EUR 2.74bn). Other investors would also be keen to accept a similar valuation, as reported.

Further deals are also expected in the space. Edinburgh Airport, which is backed by Global Infrastructure Partners (GIP), has an LTE score of 59 based on reports that its sponsor is moving closer to a sale.

An uncertain macroeconomic environment in 2023 meant that necessary and high-profile deals were prioritised. In fact, 2H23 had the lowest deal count since 2010, according to Mergermarket data, with just 194 deals slightly before year-end.

However, at the same time, 2H23 saw 71% higher deal volume than the same period last year, with EUR 19.3bn compared to 11.3bn in 2022, indicating an uptick in multiples paid and perhaps a higher number quality of assets towards the year-end.

Overall, the European transport sector has seen a 13.3% decline in deal count and a 51.4% drop in deal value in 2023 compared to 2022, not adjusting for that year’s landmark EUR 42.6bn Atlantia mega-deal.

Funds and strategics keen on core

One factor driving the sector is the way that both private equity funds and strategics are liquid and cash-rich, according to Vlad Ivanov, managing director and EMEA head of infrastructure and transport at JPMorgan. At the same time, deal financing is still available, even though prices have gone up.

Much of the activity we have seen throughout the year has in fact come from the strategic players in the space, with Europe continuing to see asset optimisation from state-owned conglomerates, Ivanov said.

Private conglomerates have become more interested in further diversifying, Ivanov said, adding that large players in shipping and ports are looking to gain exposure to other subsectors.

An example of this trend is Mediterranean Shipping Company (MSC) buying 50% of Global Infrastructure Partners’s Italian railway company Italo in October.

Another example of strategics looking to strip the fat and return to core while giving infra funds a chance to capitalise on greenifying fleets and optimising operations is the recent EUR 1.6bn deal for Arriva Group, in which Deutsche Bahn sold the entire European operation to I Squared.

Richard Thexton, co-head of Infrastructure investors group and partner at Freshfields Bruckhaus Deringer who worked on that deal agreed that strategics are looking to bring in majority and minority investors to help fund core capex. Infrastructure investors may go broader in terms of deal parameters, he said.

Thexton also pointed out that I Squared did not just buy the track and fleet of Arriva but also acquired the service-providing element itself, adding that the market may see more infra funds do that going forward.

Joint ventures could also come into focus as a way of helping corporates and financial investors to limit risks when buying new businesses or expanding into new markets, according to Martina Farkas, co-head of transport at Linklaters.

Marine and cold-chain sectors heat up

Another segment that stands out is maritime infrastructure, which will continue to attract attention, according to Ivanov of JP Morgan. Some infrastructure funds’ investments in interesting port assets are coming to maturity, he said, adding that this is combined with a broader sector interest spilling into for example liquified natural gas shipping.

Also, many cold-chain-related businesses will be of interest, whether it is food or pharma-related, Ivanov said. Cold storage combines logistics with real estate and has scaling opportunities. One company to watch is Bring Frigo of Sweden, which is backed by Mutares. It has an LTE score of 20.

*Mergermarket’s LTE predictive analytics assign a score to sponsor-backed companies to help track and predict when an exit could occur through M&A, an IPO, a direct listing or a deSPAC transaction.