UPS has announced that it is to acquire pharmaceutical logistics provider, Marken. This is not too surprising as it has been known for some time that Marken was up for sale, whilst UPS’ has a longstanding interest in the healthcare logistics market. The two companies have entered into a “definitive purchase agreement”, however there is no mention of the price being paid for Marken plc.
The synergies between UPS and Marken are significant. The combination of air freight and last mile delivery resources that UPS may be in position to offer are vital to the ability to compete in the sector. Yet possibly more important than any physical assets is the skill of the management and the workforce. This is what UPS is likely to be paying for.
Marken’s core market is clinical trials logistics, in particular, the movement of samples from field trials to the laboratories which carry out any analysis. Such samples are critical to the success or failure of any pharmaceutical and therefore are of immense value both economically and in terms of the care of patients. Any mishandling of clinical samples can be disastrous and the strength of Marken appears to be that it is trusted by the pharmaceutical sector to get things right.
However, although the ‘life sciences’ is perceived as a go-go sector full of potentially unlimited growth and thick profit margins, the clinical trials market has experienced limited growth over the past decade. The big pharmaceutical companies who carry out the largest clinical trials have become sensitive to the cost of trials and have attempted to control their growth. There may be the prospect of growth from biologics, a revolutionary new class of drugs, but this is uncertain at this stage.
In addition, the pharma logistics sector has attracted heavy investment over the past couple of years, particularly from airlines. For example, IAG has extended its investment in pharma warehousing infrastructure at Heathrow. This is increasing competition and may be depressing prices.
As for Marken itself, it has been a text book case of mismanagement by private equity. Passed from investment house to investment house it was left with an unsustainable debt and ended up in the hands of its creditors, the banks. Despite this, the underlying business has survived and continues to have quite strong profit margins.
UPS appears to be keeping Marken as a standalone operation for the moment, acting as “wholly-owned subsidiary of UPS” and retaining the senior management. This may be a wise move for UPS as the clinical trials logistics market is highly complex and requires appropriate management culture, different from that found in other, more volume orientated areas of logistics.
Source: Transport Intelligence, November 8, 2016
Author: Thomas Cullen