That XPO Logistics makes an acquisition is hardly a surprise. The company’s corporate strategy is explicitly built on buying other corporations. What is of note is that XPO bought a company so much larger than itself, with Norbert having a revenue of €5.1bn/US$5.5bn in 2014, whilst XPO Logistics was US$2.3bn over the same period. It is also surprising that the Dentressangle family was willing to sell. The French company, 67% owned by the family of the founder, has had remarkable success in growing through debt fuelled acquisitions and showed no sign of wishing to withdraw.
What’s more the price that XPO Logistics is paying is not so demanding. The offer of €217.50 per share is all cash and represents a 34% premium of the closing price on 27th April, this is only a price-to-forward estimated earnings multiple of 9.1. Factoring the low level of the Euro against the US dollar, the deal can be seen as a bit of a bargain.
It might also been seen as a reflection of the hunger for acquisitions across the world. With interest rates so low investors are hunting around for returns and this is fuelling both high valuations on stock-markets as well as plenty of credit and equity for takeovers. What must have helped with the case of Norbert is that the company is well run, profitable and growing. At such a price what is there not to like?
In the case of XPO it received US$700m in September 2014 from institutional investors PSP Investments, GIC, Singapore’s sovereign wealth fund, and Ontario Teachers’ Pension Plan – giving these investors 22% of the common stock of the company -with the explicit objective of growing the company from “2017 financial targets to approximately $9bn of revenue and $575m of EBITDA”. This has been achieved in one deal and two years.
As XPO’s CEO, Bradley Jacobs states, the company has been “catapulted” to become a “top ten global logistics company”, tripling it profits. Such growth must represent a significant risk. Although it can draw on Norbert Dentressangle’s existing management in Europe, from now the danger for XPO Logistics will be that it is unable to exert the level of control needed to deliver the complexity of services in such a large company.
XPO’s acquisition of Norbert Dentressangle, one of Global Contract Logistics 2015‘s featured providers, demonstrates the value such a company holds within the market. With its contract logistics business, strong European road network, established e-commerce solutions and growing freight forwarding operations across Asia Pacific and the Americas as well as in Europe, Norbert Dentressangle makes for an interesting acquisition target. Global Contract Logistics 2015 contains industry-leading research into development and innovation within the global contract logistics market. The report, due to be published later today (29/04/2015) includes detailed profiles of the leading contract logistics providers including Norbert Dentressangle and its direct competitors. For more information on the report please contact Michael Clover.