Today’s business world is more connected than ever as global communication enables new levels of growth. This can lead things to swing in either direction, but businesspeople must be aware that the success or failure of one sector often has a direct knock-on effect to another.
This phenomenon takes place in almost all areas of business, but with the boomtime in online orders and recent developments on the anniversary of City Link’s administration, we’re taking a closer look at the role that connectivity has played for those considering acquisitions in retail and logistics. The spider’s web of industries that feed into retail meant huge repercussions and for business buyers, these repercussions mean that there is money to be made in predicting the chain reactions before they occur.
The never-ending online retail boom
The ecommerce marketplace has been witnessing a seemingly endless boom since the earliest days of the consumer internet. Unsurprisingly it didn’t take people long to realise the convenience and low prices made possible by online commerce.
For the retail industry, the internet brought with it great upheaval, particularly for high street stores who have struggled to compete with the low prices that their online counterparts can deliver by removing the need for high real estate rental and lower staffing costs. But for those on top of the ecommerce game, there have been some huge profits to enjoy and they’re showing no signs of abating.
Consultancy OC&C has said that the UK’s ecommerce market was worth £42 billion last year, but its latest forecasts suggest that it will rise to £61 billion by 2018. Forrester Research has even higher predictions for next year, suggesting that the UK online retail market will grow by 10 per cent a year from £40 billion in 2012 to £64 billion in 2016.
And now, with Christmas around the corner, there is a further boost on the way with big shopping dates Black Friday and Cyber Monday pulling in over £800 million from shoppers last year and even higher sales predicted this year.
Driving success in the logistics sector
The direct impact of these sales for the retail sector is huge but its potential extends much further. One key sector benefitting from the chain reaction of online retail’s success is logistics and it’s here that business buyers might find some particularly interesting opportunities in the current climate.
New truck registrations have lept 36 per cent between 2014 and 2015 and numbers are still rising. Vans have also seen a substantial increase in registrations, rising 17 per cent between last year and this year, according to the Society of Motor Manufacturers and Traders. This growth has been attributed to improvements in the economy and, crucially, the extraordinary growth in online retail.
As consumers come to expect faster and faster delivery times for their orders, with many people refusing to wait more than a day for their order, competition in the industry is huge and it’s very often the retailers who can deliver with the fastest turnaround time who are winning. Consequently, the logistics companies that can enable these quick and efficient delivery times are feeling flush with extra business.
Now, with online sales accounting for a fifth of all non-food retail sales in Britain, it’s fast becoming clear why so many more vehicles are headed onto our roads as customers come to expect and demand fast and reliable delivery when spending online.
Acquisition opportunity
The opportunity is here for both retailers looking to take control of their own supply chain and business buyers keen to capitalise on the logistics boom. But as always when it comes to mergers and acquisitions, these opportunities depend entirely on timing. The people making the biggest profits here will be those who had their eye on the economy as a whole and spotted the upturn in economic confidence over the course of the year. Logistics operators who took note of the growing levels of consumer confidence and leisure expenditure were in a prime position to pursue an expansion plan to ensure they were in pole position to handle the uplift in business as it hit the online retail sector.
TEF Transport was one such business that pursued an acquisition-based expansion plan this year with its purchase of Millfield Haulage. TEF bought the Yorkshire-based haulage firm, Millfield, in order to add to its growing client lists and boost its resources.
The deal was confirmed in July of this year. Andy Mclaughlin, owner of TEF, explained the details of the benefits: “Millfield will bring massive benefits to our operation in terms of vehicle utilisation, reducing empty running for vehicles and additional warehousing.
"It will also ensure future growth as we add additional clients to our portfolio. Our plan is to double the fleet in York during the next 18 months.”
Not only will the acquisition enable the business to grow, but as Mr Mclaughlin noted, it will reduce empty running and therefore improve business efficiency for the company as a whole, putting it in an excellent position to not only pick up the extra work coming through over the Christmas period with the retail boom, but also to do so in the most profitable manner possible.
The City Link administration
Christmas makes it pertinent to look at the opportunities surrounding retail and logistics. But looking back to 2014’s festive season provides an interesting case study that functions both as a warning and a demonstration of opportunity.
Parcel carrier City Link was officially put into administration on Christmas Eve 2014 by administrators at Ernst & Young. The team came in on the 24th and many of the staff were told of the company’s collapse on the 25th, making it a high profile case for all the wrong reasons.
It quickly became apparent that the administrators would sell a lot of City Link’s assets and cages, scanners, intellectual property and more were quickly put up for sale. Rival firm DX came in in early January 2015 and paid £1 million for some of the equipment and IP.
Peter Cvertkovic, chief executive at DX, described the acquisition as a limited investment and noted that the company would be offering solutions to customers in need of a new carrier.
For City Link itself, the only silver lining in the administration has been the recent decision (November 2015) not to charge three of its ex-directors with any criminal charges relating to the administration. But for DX and others who came in to buy City Link’s assets at a much reduced price thanks to its collapse, the administration of a major operator and competitor proved to be a great source of opportunity and profit, albeit one that may have been downplayed in the press due to the unpleasant manner in which its administration played our for staff involved.
Up and up
Research from PwC back in June predicted an increase in mergers and acquisitions in the transport and logistics industry in the second half of 2015. It noted that the economic recovery was driving this, along with the need to branch out into new markets, prompting many larger companies to look at their options in new geographical regions, both in terms of sector and geography.
The Barclays UK Logistics Confidence Index for the first half of 2015 backed up PwC’s findings, indicating that confidence in the sector is strong with the improved economic environment providing a “key opportunity to invest and grow”.
It’s clear that positivity is running high in the logistics sector regarding the current economic situation and the immediate future; the Christmas rush will no doubt bring further confidence to the sector and profits for those who took advantage of the potential involved.
As the impact of this filters out to the connected industries, it serves as a useful point of reflection: The potential profits to be made by keeping an eye on sectors across the board are enormous for those who spot the opportunities at the right time.
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