Bradley Jacobs’ pace of deal making is explosive. His company, XPO Logistics has only just bought Norbert Dentressangle, which itself had leapt into a leading position in contract logistics across Europe through a series of big acquisitions. This has been followed within a few months by Con-Way, which alongside FedEx and UPS, is in the top tier of trucking companies in the US.
In less than six months, XPO has spent over US$6bn. Such a run-rate is supported by Mr Jacobs’ ability to convince big institutional investors to buy equity in XPO although the company also carries substantial debt with the most recent offering being a US$500m loan note sale. The equity component reduces some of the risk involved in creating what is now the second largest contract logistics provider in the world and one of the largest road freight companies. None-the-less the construction of such a large company in such a short length of time through acquisition is a move of considerable audacity as well as great ambition.
The logic behind XPO is two-fold. Firstly it sees the potential for greater efficiency through consolidation. This applies to physical assets such as consolidation centres, cross-docks and warehouses, but also to IT infrastructure. It appears that Jacobs’ objective is to create “platforms” for IT and other fixed costs into which acquisitions can be plugged. For example, Norbert Dentressangle is described as such a platform for Europe, so presumably there is a lot more to be plugged into it yet.
The other pillar of XPO Logistics’ ambition is its belief in the underlying growth potential of logistics. Mr Jacobs has stated that outsourcing is still a major trend in the secular growth of the logistics sector, with the potential for expansion at significant multiples of underlying GDP growth. This, in the opinion of XPO, applies to areas such as last-mile delivery which it expects to increase by a rate of between 5 and 6 times the growth of GDP but also road freight and contract logistics. If Mr Jacobs and his team are right, the logistics sector is about to become one of the most attractive in the developed economies.
The big threat to XPO must be the scale and speed of expansion. It is noticeable that XPO buys good quality, well managed companies, yet the senior management at least is replaced quite quickly. Hervé Montjotin has left his position at the former Norbert Dentressangle and Con-way’s CEO Douglas Stotlar will remain for a transitionary period only. Although XPO Logistics has an experienced cadre of managers, running a global logistics company demands a considerable quantity of human resources who have detailed understanding of local markets. Lose this and the company will lose its position in the market rapidly.
Mr Jacobs has indicated that XPO Logistics may refrain from major acquisitions in the short-term. However if the company’s ambitions in areas such as freight forwarding are to be satiated it probably needs to purchase a large forwarder in the medium-term. If so, XPO Logistics would cement its position as one of the largest logistics service providers in the world, only over-shadowed by the likes of UPS, FedEx, DP-DHL or perhaps Maersk.
