The third party logistics market is seeing an upswing in merger and takeover activity globally. Malory Davies looks at some of the key deals.
No-one can doubt the pace of consolidation in the third party logistics market and it is clear that much of it is being driven the United States. Deal activity in transport and logistics in the second quarter of 2015 was significantly higher than in the first quarter and the year before, according to Intersections, the quarterly analysis by PwC. It highlighted the fact that this was driven by substantial megadeal growth (more than 36 per cent compared to the first quarter), and average deal value also increased, to $564 million.
XPO Logistics hit the headlines last month with its $3 billion takeover of Con-Way, the giant American trucking company that owns Menlo Logistics. But that is just another step in the phenomenal growth of XPO.
The company was founded as Express-1 in 1989, but it was in 2011 that a new leadership team took over and started building XPO into a multi-billion dollar company.
It has been growing rapidly: revenue last year was $2.4bn (£1.6bn) – a 235.6 per cent increase from 2013. During 2014, it completed three strategic acquisitions: Pacer International, ACL and New Breed Logistics. And then earlier this year, it moved into Europe in a big way with the take over of Norbert Dentressangle. Dentressangle itself has grown dramatically in recent years. It was founded by 24-year- old Norbert Dentressangle in 1978 and has expanded in the UK with takeover of two major players: Christian Salvesen and TDG. Last year Dentressangle completed the £452m takeover of US logistics group Jacobson.
Now, with the takeover of Con-Way XPO will become the second largest provider of less-than-truckload transport in North America, a market that it estimated to be worth some $35 billion. But the deal will also expand XPO’s logistics operations both in the US and across Europe. Menlo opened a 170,000 sq ft distribution centre near Chesterfield in 2013. And earlier this month is agreed a deal with Prologis for a 750,000 sq ft facility at Eindhoven in the Netherlands.
Bradley Jacobs, chairman and chief executive of XPO Logistics described Menlo as “another crown jewel in this transaction” pointing out that it is “an asset-light top 30 global contract logistics provider with additional lines of business in freight brokerage and managed transport. Menlo serves blue chip contract logistics customers in verticals such as high tech, healthcare and retail, which complement the verticals we serve at XPO.”
XPO expects the transaction to almost double its full year EBITDA to some $1.1 billion and increase revenue to $15 billion. The Dentressangle and Con-Way deals have taken XPO from a minor competitor to a major global player in next to no time.
But is not the only company intent on expansion. FedEx launched its €4.4 billion bid for TNT Express last month, giving shareholders until 30th October to make up their minds on the deal. FedEx has made a cash offer of €8 per share, valuing the TNT business at some €4.4bn (£3.21 bn, $4.8bn). TNT Express is due hold an extra-ordinary meeting in a few days time (5th October) to discuss the offer. PostNL, the Dutch post office, which holds 14.7 per cent of TNT shares is supporting the deal.
Last month, the European Commission launched an in-depth investigation into the deal. It said it was concerned that in a number of European markets for international express and regular small package deliveries, the merged entity would face insufficient competitive constraints from the only two remaining large integrators – UPS and DHL.
The Commission, of course, spent almost six months investigating the €5.2 billion bid for TNT by UPS before turning it down two years ago. Nevertheless, FedEx is confident that it will get the go-ahead.
“We believe the combination will provide significant value to both companies and both sets of shareholders. FedEx is delighted by the unanimous support from the executive board and the supervisory board, “ said David Binks, regional president Europe at FedEx Express.
FedEx and TNT argue that the combination’s customers would enjoy access to an enhanced, integrated global network. This network would benefit from the combined strength of TNT’s European road platform and Liege hub and FedEx’s strength in other regions globally, including North America and Asia. On completion of the deal, Binks will join the TNT Express executive board and chief executive officer. Tex Gunning, currently CEO of TNT, will serve on an integration committee for six months before leaving the group.
The UPS-TNT deal highlights some of the problems that can arise when the process does not run smoothly. TNT lost its CEO Marie-Christine Lombard who resigned to become chief executive officer of Geodis. And inevitably, the uncertainty created affected business. It’s no surprise that FedEx expects to get the business for some €800m less that UPS was prepared to pay in 2012.
UPS itself has been in acquisition mode, agreeing in August to acquire Coyote Logistics, a US technology-driven, non-asset based truckload freight brokerage company for $1.8 billion from Warburg Pincus. “The brokered full-truckload freight segment is a high growth market and we expect it will continue to outpace other transport segments,” said UPS CEO David Abney.
The PwC report points out that as a key driver, the US economy remains strong and the US dollar continues to advance against the euro, the yen, the pound, and many other currencies. “This makes cross-border acquisitions by US companies cheaper, on a relative basis.”
But it is not just US companies that are looking for expansion. PwC makes it clear that Asia and Oceania continued to be the largest acquirer region with more than one-third of all deals announced. “This strong level of activity was driven in part by activity in China where ten of the 21 deals in the region were based.”
In June, Japanese forwarder Kintetsu World Express completed the acquisition of APL Logistics from Neptune Orient Lines. The £780m (US$1.2bn) deal was agreed in February. Kintetsu said it wanted to create anorganisation that can compete on a par with European and US competitors in the global market.
“By welcoming APLL into the KWE Group, we can expect to complement the KWE Group’s freight forwarding services in terms of both commodities handled and regions for expansion, and we will be able to combine the logistics services and various high-value-added services that are the strengths of APLL with the air and sea freight forwarding services that the KWE Group is expanding globally, and these synergies will, in turn, make it possible to create new value and provide a broad range of optimised logistics services to customers.”
APL had sales of £1bn (US$1.6bn) in 2013. For the year ended 31st March 2015, Kintetsu had a turnover of Y327.2bn (£1.72bn) and an operating profit of Y16.6bn (£86.8m). It is forecasting a seven per cent increase in turnover for the coming year (ending 31st March 2015) to Y350bn (£1.84bn).
And in May, the Japanese state-owned post office, Japan Post, became a major player in the logistics market with the A$8 billion takeover of Toll Holdings, Australia’s largest logistics provider. The move is reminiscent of Deutsche Post’s expansion into the logistics market in the late 1990s. Japan Post CEO Toru Takahashi said: “We regard Toll as a great partner and teacher in the field of global logistics, especially in the areas of forwarding and contract logistics. By leveraging each other’s strengths we aim to become a leading company in the very competitive global logistics industry.”
Toll is now being run as a division within Japan Post retaining the Toll name. Management has remained in place with CEO Brian Kruger reporting to Takahashi. Last month it was reported that Japan Post was seeking to raise up to 1.4 trillion yen (£7.4bn) through a listing on the Tokyo stock market. Despite the fact that there are some very large players in the third party logistics market, it remains remarkably fragmented globally. The level of M&A activity in the market reflects the increasing need for companies to offer services on a global scale if they are to compete. All the evidence is that there will be further consolidation ahead.
Automotive logistics: Transporters of delight
The big global deals have been hogging the headlines, but any deal that includes the UK’s Eddie Stobart is bound to catch the attention. It has sold its UK Automotive Logistics business, which operates 450 vehicle transporters, to BCA Marketplace plc, the company chaired by Avril Palmer-Baunack – herself a former senior executive at the Stobart Group.
In a trading statement, Palmer-Baunack, said: “On 25 August 2015 the group completed the acquisition of Eddie Stobart’s UK Automotive Logistics business.
“The acquired business operates approximately 450 vehicle transporters with strong, long-term relationships with the majority of the leading OEMs and vehicle leasing companies.
Palmer-Baunack was CEO of Autologic Holdings plc, and went on to become deputy CEO of the Stobart Group following its takeover of Autologic for £12.4m in June 2012. She became executive chairman of the Stobart Group in January 2013, but left the business just three months later.
She said the acquisition by BCA “will bring extensive logistics expertise, geographical coverage across the UK and the scale and capacity to significantly enhance the existing logistics services within the group”.
BCA Marketplace plc, is the new name for Haversham Holdings plc which was created during 2014 to acquire and manage companies in the UK and European automotive sector, including support services, leasing, engineering and manufacturing.
On 2 April 2015, the group completed the acquisition of the BCA Group, car auction business. It also owns the web site webuyanycar.com.