DSV transformed by UTi purchase

The prospect of the purchase of UTi Worldwide by DSV can hardly come as a surprise. The conversations last year between the two appear to have foundered on the price DSV was willing to pay for UTi. However since then the value of the equity of the Californian based forwarder has crashed from over $10 to under $5. The implications were obvious.

DSV has offered US$1.35bn for UTi, which it describes as a 0.34 multiple of sales. Valuing UTi by a prices-to earning multiple is more difficult due to the poor profitability of the company. However Edward Feitzinger, UTi’s CEO, stated in the last quarter’s results that he expected profits for the full year of US$75m-100m. To draw some sort of comparison, XPO paid US$3billion for Con-Way which stated an expected full year EBITDA (Earnings Before Interest, Depreciation and Amortisation) of US$528m.

The DSV offer represents US$7.10 per share which is 50% higher than the closing price on the 8thOctober and all the more generous as the stock had experienced a sustained fall since June. It is hard to see much resistance by shareholders to such an entreaty.

In any such deal a concern is the ability of the company making the purchase to integrate what it has bought. Certainly UTi continues to work on internal organisational issues whilst the freight forwarding market for both sea and air transport is difficult. DSV will now have the seventh largest air freight and the sixth largest sea freight forwarder operation in the world and it will transform its geographical exposure with much increased exposure to the Americas and Africa in particular. UTi always struggled to pull together its disparate businesses and the new-look DSV will face the same problem. However DSV has had an impressive record of making such acquisitions work, with the purchase of forwarding and logistics businesses in Belgium and Italy being remarkably successful. This appears to be attributable to the tight grip that its senior management holds over its operations.

John Manners-Bell, Ti’s CEO commented, ‘DSV has transformed itself into one of the leading truly worldwide and diversified logistics service providers. Although it will have to work hard to refashion UTi’s various business, if it gets it right it will lay the foundations for substantial growth on a global scale. The purchase is a risk but a modest and calculated one.’