GXO Logistics’ potential acquisition of Clipper Logistics plc is a possibility

Following a news leak, which indicated thatGreenwich, Conn.-based global contract logistics services provider GXO Logisticswas acquiring London-based Clipper Logistics plc, a provider of omni-channel retail logistics services, the companies said on February 20 that their respective boards announced in a joint statement “they have reached agreement on the key terms of a possible cash and share offer for Clipper by GXO.”

The statement added that the Board of Clipper confirmed to GXO that should a firm offer be made on the financial terms of the Possible Offer, it will unanimously recommend it to the company’s shareholders.

Clipper provides value-added, consultancy-led services for its blue-chip client base, noted the statement. And it noted that Clipper is a leader in the United Kingdom, with a long-standing customer base in various sectors, including: e-fulfillment, fashion, and high-value logistics. Clipper also has an increasing presence, in addition to the U.K., as it also has operations in Poland, Germany, the Republic of Ireland, the Netherlands, and Belgium. For the six months October 31, 2021, 68% of Clipper’s logistics revenue was generated from e- fulfilment and returns management activities and for the year ended April 30, 2021, 93% of revenue within UK logistics was derived from open book or minimum volume guarantee contracts, giving the business a high level of contractual certainty, the statement added.

“This potential acquisition would enhance GXO’s position as a successful pure-play logistics leader,” said GXO Chief Executive Officer Malcolm Wilson. “We believe the combination would offer significant value creation for the stakeholders of both companies.”

GXO officials called this potential deal a compelling strategic combination, which significantly increases the opportunities, for both GXO and Clipper, in the high-growth e-commerce and e-fulfillment sectors, while also creating value for both companies’ stakeholders. And they provided myriad benefits, including:

• enhancing GXO’s position as a successful, innovative and well-capitalized pure-play logistics leader;
• combining highly complementary service offerings, customer portfolios, and footprints in the UK and Europe, enabling significant cross selling of capabilities across a large combined customer base;
• bringing together two natural partners with a very strong cultural fit; GXO is committed to protect and build on Clipper’s entrepreneurial approach for the benefit of both businesses and their employees and intends to safeguard the existing employment rights, including pension rights of Clipper employees; and
• taking advantage of technology and infrastructure overlap in the joint enterprise

News regarding this potential deal does not come as a major surprise, considering that XPO Logistics, whom GXO spun-off from to form a standalone company last year, significantly scaled up its service portfolio through various acquisitions going back to its inception in 2011.

What’s more, GXO Chief Investment Officer Mark Manducatold LM last week, following GXO’s fourth quarter earnings release, that 2022 M&A moves are viewed as a possibility in order to fill certain service niches or needs maybe expand into certain geographies.

“Things are on the table as we view those types of moves,” he said. “This business deserves acquisitions, and this business is sitting in a highly fragmented market, where the top five customers control less than 25% of the market share. We've got the balance sheet and the heritage to do deals and that's definitely part of our wheelhouse. I would say it is somewhere in the region of a low single-digit number of bolt on deals per year, maybe a mid-sized deal. We are going to be very return on invested capital-focused and what shareholders want in terms of a deal.”

Jeff Kauffman, principal for Stamford, Conn.-based Vertical Research Partners, wrote in a research note that Clipper would substantially increase GXO’s e-commerce and logistics fulfillment operations and bring in a number of new U.K.-based retailers, as well as growth the company’s life science logistics business and further expand into new markets such as Germany, Poland and Ireland.

“As an e-fulfillment company, we believe further that there would be meaningful synergy benefits in terms of technology systems and infrastructure integration opportunities, as well as a potential ESG benefit via the efforts that Clipper had already undertaken in the U.K.” wrote Kaufman.