Business Services Sector Comment – June 2016

The logistics sector is experiencing unprecedented levels of interest from private equity. Whilst the majority of transactions in the sector to date have been completed by trade purchasers, financial investors are increasingly looking to capitalise on favourable market conditions and acquire their platform.

This month saw Sovereign Capital complete the management buy-out of Dalepak, a provider of tech-enabled outsourced logistics services. The deal marks the first investment in the space for the buy & build specialist that invests in the support services, education & training and healthcare sectors. However, whilst it is the first for Sovereign, other investors to tap the market include Livingbridge, who purchased 4pl provider Carousel Logistics, and Exponent who backed the management buy-out of aerospace and defence 4pl provider, Pattonair. LDC has also been active in the sector having acquired home delivery provider Panther Logistics and reinvested in the secondary buyout of palletised freight distributor The Pallet Network, a deal in which Clearwater International advised the management team. Furthermore, in February LDC acquired a stake in same-day delivery company CitySprint. The deal was reported at a valuation of €225m suggesting an EV/EBITDA multiple of 10.4x.

The trend is not just limited to the UK. In fact, May saw two of the largest acquisitions in the sector completed by private equity houses as US-based AEA Investors acquired leading Nordic freight forwarder Scan Global Logistics from BWB Partners, for an estimated €148m; while TNT Express sold its overnight distribution subsidiary TNT Innight to a fund managed by Germany-based Orlando Management.

With growing pressure on margins and companies looking to cut costs, players are now investing heavily in infrastructure and in particular IT systems to increase efficiency and productivity as well as drive down overheads. For example, Royal Mail is halfway through the delivery of a €165m investment in hand-held technology, and has also made a number of strategic acquisitions to strengthen its technological capability, including the purchases of shipping software company Intersoft in March and  NetDespatch, a cloud-based management platform, in late 2015.

A number of large transactions amongst the world’s largest operators, such as the €4.4bn takeover of TNT Express by FedEx, completed last month, provides further evidence of consolidation within the industry. As more companies outsource their logistics services, players in the sector seek inorganic opportunities to increase geographic footprint, which has led to an increase in cross-border deals. We expect high levels of M&A activity from both trade and private equity to continue, driven primarily by e-commerce growth, as a result of an improving economic environment, and a windfall of cash due to lower fuel prices.


Notable Deals

Levine Leichtman Capital Partners, a US-based private equity firm, announced that it has partnered with management to acquire GL Education, a leading UK-based provider of educational assessments for an undisclosed consideration. The deal is estimated at €275m and provides an exit for Investcorp.

LDC, the UK-based mid-market private equity firm along with the management of TXM Plant Ltd, the UK’s largest supplier of road rail vehicles, has acquired the company in a management buyout transaction, for an undisclosed consideration – a transaction which Clearwater International advised on.

Randstad Holding NV, the listed Netherlands-based provider of staffing services, has agreed to acquire Obiettivo Lavoro, an Italy-based recruitment agency for an enterprise value of €102.5m. Following the acquisition, Randstad will become the second biggest recruiter in Italy.

RINA S.p.A., an Italy-based testing, inspection, certification and consulting engineering group, has acquired Edif Group Ltd, the UK-based company engaged in providing industrial testing, inspection, certification and consultancy services, from Phoenix Equity Partners for €151m.

WSP Global Inc., the listed Canada-based engineering professional services consulting firm, has made a cash offer to acquire rival company Sweett Group plc, the listed UK-based provider of professional services for the construction and management of building and infrastructure projects, for €31.6m.

AEA Investors, a US-based private equity group, has entered into an agreement to acquire Scan Global Logistics, a Denmark-based logistics organisation, from Danish investment firm BWB Partners, for an estimated €182.3m.

Education Services Solutions Ltd (ESSL), a newly formed private equity-backed company, has acquired Strictly Education Ltd, the UK-based provider of outsourced payroll, HR, IT, property and other services to the education sector, from Bond International Software plc, the listed UK-based provider of software for the international recruitment and human resources industries, for a consideration of €15m.

Technip SA, the listed France-based company engaged in project management, engineering and construction for the energy industry, and FMC Technologies, Inc., the listed US-based energy sector engineering company, agreed to merge, for €4.5 billion. Following the transaction, Technip will own 50.9% of the combined entity, while FMC will own 49.1%.

Centrica plc is the listed UK-based energy company, has acquired ENER-G Cogen International Ltd, a supplier and operator of combined heat and power solutions, from ENER-G Holdings plc, for €184m.