The Changing M&A Environment – What’s Next?

Come join us in St. Louis Oct. 23rd as we discuss the changing m&a environment.

The CSCMP St. Louis Chapter will host its October luncheon with guest speaker is Mrs. Cathy Roberson–Senior Analyst, Transport Intelligence. Thursday, October 23, 2014. Crowne Plaza-Clayton, Missouri.

Changes are in the midst for the logistics market. Mergers and acquisitions are up as such trends as an improving US economy and nearshoring take hold. What else is driving this growth? Who’s buying whom? Who’s at risk? What is the outlook?

  • Overview of the 2013 market and 2014 market to date
  • Trends driving the growth of M&A activity
  • What parts of the logistics market are of particular interest for acquisition?
  • Pros and cons for shippers – how do they benefit in this environment? Drawbacks?
  • What is the outlook?

To register, please click here.

For additional information on m&a activity, be sure to sign up for Transport Intelligence’s free newsletter service at http://www.transportintelligence.com

Recent articles include:

M&A interest continues in the US logistics market

North American logistics and transportation mergers & acquisitions heats up

Stifel Monthly Confidence Index

It’s been a while since the last post! Hope everyone is doing well. A BIG favor to ask of all please. Each month we conduct a survey concerning the health of the freight forwarding market – a topic near and dear to my heart. On behalf of Stifel, this data is then analyzed (yes, by yours truly) and available for free download from Transport Intelligence.

Also, for those dedicated participants that take the survey for 12 straight months, there is an opportunity to win one of four iPad minis.

The link to the survey is here. Closing date is Oct. 10.

If you have any questions/suggestions just let me know.

Thank you very much!

Cathy

Another acquisition in the US transportation market

Just days after the publication of Ti brief, North America logistics and transportation mergers & acquisitions heats up, yet another acquisition has been made. The latest acquirer, Roadrunner Transportation Systems, is not shy when it comes to acquisitions. In fact, it has made quite a few and as recent as just July when it acquired Integrated Services Inc. for $13 million.

Integrated Services provides regional logistics for its customers’ warehousing and transportation needs, and has revenue of about $21 million.

But perhaps the bigger news is Roadrunner’s latest acquisition, Active Aero Group, a ground and air expedited service company, which it acquired for $115 million, its largest acquisition this year.

According to the press release, Roadrunner Transportation is purchasing Active Aero because of its spot bid technology, controlled capacity, procurement system and multimodal offering.

“As we have indicated, the ability to provide air and ground expedited services to meet customers’ total transportation needs has been a key strategic objective for Roadrunner,” said Mark DiBlasi, president and chief executive officer of Roadrunner. “Active Aero’s strong position in the marketplace is based upon the high quality of its service offering and personnel and its unique blend of expedited services. As a result, we believe Active Aero represents an ideal match with our strategy and an excellent platform for growth in expedited services globally.”

Indeed, a Stifel note regarding this acquisition suggests the expedited transportation management segment may be important for growing a full-service logistics platform. Stifel cites the late 2013 acquisition of NLM, a competitor of Active Aero, as an example of this trend.

Financially, Roadrunner’s acquisitions are having a positive impact on the company. For the second quarter, Revenue increased 39% to $460.2 million while net income increased 10.7% to $27 million.

Revenue benefited from a number of recent acquisitions, including Wando Trucking, TA Drayage, G.W. Palmer Logistics, Yes Trans, and Rich Logistics, Adrian Carriers, Marisol International and Unitrans.

With this latest acquisition, Roadrunner Transportation Systems portfolio of services is even more impressive. The link shows how these acquisitions fit into its services:

Roadrunner Services and Companies

So, who’s next? It looks like m&a activity in North America is indeed increasing. As noted in the Ti brief, improving economic conditions and fragmented market are among the reasons for this increase in activity.

Supply Chain Plays Major Role in the US Dollar Discount Retail Sector

The US GDP grew 4.0% for second quarter. By all appearances the US economy is improving, but tell that to consumers that regularly shop at such discount stores as Dollar Tree, Dollar General, Family Dollar and many will tell you otherwise. Deloitte estimates the top three retailers account for over 52.0% of total sector sales and average sales have grown 10.0% annually over the past decade.

Not surprising, consolidation in this sector is underway. The #2 discount retailer, Dollar Tree recently announced plans to acquire #3 discount retailer Family Dollar. The $8.5bn merger will result in a combined company with $18bn in sales, close to the largest discount retailer Dollar General with about $17.5bn and more than 13,000 stores.

Family Dollar has been suffering from a lack of direction and tired stores that have not changed in years. An expansion plan was shelved earlier this year when the company announced in April that it would actually close 370 stores and said foot traffic was declining. The company has 11 distribution centers in the US, maintains a private truck fleet as well as utilizes TL, LTL and intermodal carriers. According to its investor relations website, Family Dollar notes that a majority of imported merchandise is shipped from East Asia. Several major steamship lines, as well as an NVOCC are used for its international shipping needs. It appears Family Dollar has been using G-Log’s TMS solution since 2003. In 2005, Oracle acquired G-Log.

Meanwhile, Dollar Tree’s supply chain is managed in-house and consists of 10 distribution centers in the US and two outsourced facilities in Canada. According to its current 10-K filing, Dollar Tree stores receive about 90% of inventory from its distribution centers via contract carriers. The remaining store inventory, primarily perishable consumable items and other vendor-maintained display items are delivered directly to stores from vendors. Dollar Tree utilizes MercuryGate’s PowerTMS solution.

In the merger announcement, the companies said they would continue to run and develop both brands. Officials of Dollar Tree and Family Dollar said each chain will operate independently for the foreseeable future and that Family Dollar will continue with its planned store closings. However, the synergies of a combined supply chain could make for a more powerful united retailer particularly in regards to price negotiations with suppliers. Also, each company appears on the JOC’s top US Importers 2013 at #20 for Family Dollar and #21 for Dollar Tree with 68,600 TEUs and 66,500 TEUs respectively.

The discount dollar sector is growing and facing increasing competition from the likes of Wal-Mart which is expanding its smaller-format stores. As such, consolidation will likely continue. Will leading dollar discount retailer Dollar General team up with Wal-Mart or continue on its own? It’s early to say but a successful supply chain is particularly necessary in this sector to keep shelves stocked and prices low.

Managing Supply Chain risks may be as simple as a video conference away

Managing supply chain risks may be as simple as a video conference. As many folks know, I am always on the lookout for start-up companies that offer new solutions to the supply chain market. Though its services are for all industries, one interesting company is Zoom. Based in Santa Clara, California, Zoom is one of a growing number of start-ups that provide cloud-base solutions.

According to an Enterprise Networking Planet article, Zoom is “a true cloud-based solution,” with no dedicated on-premises hardware required. This is an important differentiator, according to Nick Chong, the company’s head of product marketing who also noted the company’s approach to mobility as another differentiator. Mr. Chong further states that Zoom is the first in the market to offer mobile screen sharing within video conferences. Mobile users can also start or join meetings; send invitations via email, SMS, and instant message; and utilize a full suite of collaboration features, such as typing on and annotating documents and presentations and recording meetings directly from their mobile devices.

So, what are the advantages of Zoom’s offerings for the supply chain market? One example can be found in freight forwarding. By nature, freight forwarding companies interact on a global basis and as such need to be able to keep up with changing trade regulations as well as to be able to react to any change within the environment quickly or else run the risk of delays and/or possible damages to goods. Communication and collaboration are important to keep the flow of goods moving between trade lanes.

JAS Forwarding is one such freight forwarder that utilizes Zoom for its internal communications. JAS consists of a global network of 47 subsidiaries, 35 exclusive agents and more than 3,700 employees across 80 countries. As a cost savings measure as well as one to provide a high standard of customer satisfaction, Zoom is being used for training purposes and for global counterparts to discuss business trends, new solutions, and strategies to improve service to customers.

Supply chains continue to globalize and with this expansion comes the need to communicate with teams regardless of where in the world they may be – collaborating, training and sharing knowledge and being able to react quickly to any potential risk that may occur is a requirement especially in freight forwarding. The rise of mobile devices such as smart phones and tablets and cloud-based solutions such as Zoom are allowing companies such as JAS to communicate with employees around the world in an easier and cost-effective manner.

Cost management and e-commerce result in good fourth quarter for FedEx

The latest earnings from FedEx depicts rising revenue, improving operating income and increasing volumes. For fiscal year 2014 (June 1, 2013 – May 30, 2014) overall revenue increased 2.9% to $45.6bn and operating margin was 7.6%. For the fourth quarter (March – May), overall revenue increased 3.5% with operating margin of 10.0%. It appears that there are improving economic signs, particularly as weather improvements in the US domestic market from January and February brought forth the need to clear shipper backlogs. But perhaps even more so, the company is benefiting mostly from rate increases and its reorganization and cost management programs.

The company’s largest division, Express noted a slight 0.2% increase in revenue for the quarter but thanks to higher package volumes and improved yields, operating income increased 3.0% to $475m from an adjusted $460 from previous year. Average daily international volumes increased 2.0% while those for US domestic increased 3.0%.

The Freight division also noted good numbers with revenue increasing 12.0% to $1.5bn for the quarter and operating income up 51.0% to $122m from an adjusted $81m same period last year.

As with previous quarters, e-commerce was credited with increased volumes and revenue for the Ground division. Revenue increased 8.0% to $3.0bn from $2.78bn the previous year. Average daily volumes increased 8.0%. Its SmartPost service reported an 8.0% decline in volume but management noted that this was due to one customer opting to go directly to USPS instead.

FedEx’s outlook for the new fiscal year includes aircraft deliveries to support its fleet modernization and to continue expansion of the FedEx Ground network which management attributed to market share gains. For all its divisions, the company will continue to focus on revenue quality and improve yields.

Meanwhile, FedEx noted on its earnings call that it implemented two pricing changes during the fourth quarter. The Freight division increased its published fuel surcharge indices by three percentage points effective June 2 and perhaps what could be prove contentious is its plan to expand its dimensional weight pricing to all Ground package shipments effective January 2015. While it currently applies such pricing to packages over three cubic feet in size, management noted by expanding such pricing to all Ground package shipments will align its pricing with its cost to deliver. As such, FedEx management commented that the move to dimensional pricing will give FedEx the opportunity to work with customers to make better packaging decisions. Additional thoughts and analysis on FedEx and UPS announcements to implement dimensional pricing will be provided in a separate blog post this weekend.

To conclude, FedEx reported a good fourth quarter thanks mostly to cost management, restructuring and rate increases. The company is optimistic in regards to improving global economic conditions and highlighted on its call its investments it has made to its Japanese and Mexican infrastructure as well as its acquisition in Africa. According to CEO Fred Smith, the company’s strategy in the Express business is “to operate an unduplicated backbone priority network that allows people to move door-to-door express shipments of parcels and light freight between almost any two points on the planet within one to two business days”. Indeed, it appears the company is heading in the right direction.

Same-day delivery? The real race is in both fulfillment and delivery

A sneak peak into Ti’s Americas newsletter tomorrow. To sign up to receive the newsletter, click here.

 

Several articles are reporting of the potential shut-down of Ebay Now, Ebay’s one-hour courier service. While Ebay denies such a possibility, one wonders how viable a $5.00/one hour service really is.

Amazon, Google, Wal-Mart plus a host of others are all trying their hands at same-day delivery with each achieving some form of success and expansion.

However, don’t rule out Ebay yet. Ebay Now is based on the company’s acquisition of Milo, a local shopping start-up that lists real-time in-store product inventory for over 50,000 stores across the country; featuring over 3m products from Target, Macy’s, Best Buy, Crate & Barrel and more. Since that 2010 acquisition, Ebay has gone on to acquire UK-based Shutl, which provides a network of couriers to deliver local goods within a couple of hours of an online purchase. Together, the two companies have partnered with UK-retailer Argos to offer a Click & Collect and fulfillment solution.

Expect Ebay to tweak Ebay Now here in the US as it expands its fulfillment solutions.

While local delivery in US metropolitan locations such as New York, San Francisco and Chicago will probably remain a niche solution, delivery combined with fulfillment options will prove the winner in the same-day race as evident by Amazon’s fulfillment facility building frenzy. EBay is following suit with its seven facilities located in Kentucky; Virginia; Nevada; Ontario, Canada and Manchester, UK. Along with traditional fulfillment solutions, it offers “modular, cloud-based SAAS solutions” such as ship-from-store, in-store pickup and ship-to-store. In other words, its omnichannel solution offers quick, nimble and agile solutions for retailers in the fast changing retail industry.

For example, this past week, eBay Enterprise, an eBay company, announced it will provide regional fulfillment services for Walgreens and Paula’s Choice. Walgreens first signed with eBay Enterprise in 2011 for distributing its West Coast Drugstore.com business and then in the fall of 2012 for Walgreens.com. This renewal agreement will provide ship-to-store and direct-to-consumer West Coast order fulfillment from the eBay Enterprise fulfillment center in Reno, Nevada.

Fast growing west coast-based Paula’s Choice needed to expand its capacity and provide a location that could deliver product quickly to the east coast. As a result, it has contracted with the eBay Enterprise Shepherdsville, Kentucky facility.

“Today’s consumer expects their order quickly, hassle-free and with nominal shipping fees if any,” said Tobias Hartmann, interim president of eBay Enterprise. “Our goal is to provide retailers with warehouse and store-based fulfillment solutions that provide a competitive advantage and exceed their customers’ expectations to build long-lasting loyalty.”

Indeed, can such traditional providers of fulfillment and delivery as FedEx and UPS offer similar solutions? The use of cloud-based solutions is on the rise allowing for quicker implementation and lower costs – a benefit for retailers competing in such a competitive environment. Keeping costs down is a necessity so not only are retailers looking to keep fulfillment costs low, transportation costs are another concern. As FedEx gets set to launch its dimensional pricing in 2015 with UPS expected to follow, retailers may start to look for alternative solutions or end free and/or reduced shipping for customers. Regional delivery companies such as Eastern Connection and OnTrac are waiting in the wings.