Logistics & Infrastructure Services

Some areas of the transport and logistics industry continue to enjoy above average growth. However, the distribution of bulky, low-value items has become highly competitive. The market is consolidating rapidly and as a result there has been significant margin pressure; international growth through acquisitions, joint ventures or alliances is often crucial to companies’ economic survival.

Postal operators – many of which face global competition and an erosion of their local domestic monopolies – are following an aggressive approach, entering new markets with integrated express, logistics and transportation service packages. Candover’s €692 million acquisition of DX Services illustrates how continuing deregulation in the United Kingdom’s postal sector and high barriers to entry are presenting real opportunities for mail delivery companies.

DX and SMS both operate in £6.5 billion UK postal market – but in different areas. DX is a leading provider of business-to-business mail services, specialising in secure document exchange for business customers such as lawyers. SMS is the largest private sector player in secure mail, delivering items such as credit cards and passports to consumers. Between them they deliver 290 million letters and parcels each year. The recent deregulation of mail in the United Kingdom means there is market share to gain, while high barriers to entry protect existing players.

The successful logistics companies of the future must demonstrate that they have global reach, can operate with favourable cost structures and can build strong partnerships in which they are truly integrated into their clients’ operations. Private equity is focused on investing in businesses that distribute high value or specialist products, where time is critical and where barriers to entry are high.

Investments include Phoenix Equity Partners’ NFT Distribution and private equity fund Apollo Management’s acquisition of Netherlands-based TNT Express for €1.5 billion.

The profile of the United Kingdom's waste management industry has never been higher. Increasing regulation has been introduced with the ultimate aim of reducing the country’s traditional reliance on landfill disposal. Legislation such as the pre-treatment requirements of the Landfill Regulations means that no waste may be sent to landfill unless it can be shown to have undergone a treatment process. This increases the amount of waste that is recycled, increasing the pressures on local authorities and the country as a whole to reduce waste and maximise re-use and recovery.

Montagu Private Equity and Global Infrastructure Partners recently acquired Biffa in a £1.2 billion take-private buyout. Biffa provides waste collection, treatment and recycling, and disposal services to around 75,000 local and national customers in the United Kingdom’s industrial, commercial and municipal sectors. The investment case was was based around the increasing demand for sustainable waste management solutions, the increasing scarcity of land fill and the development of a range of alternative treatment, recycling and disposal options.

Private Equity will continue to target companies that provide an essential service that cannot be replicated and for which there will be a longer-term requirement.

Another interesting investment in the logistics and distribution sector is TDR’s acquisition of French-based Algeco, one of Europe’s leading modular building hire companies, from TUI AG in 2004. Since the acquisition, TDR has used Algeco to consolidate the market, with the acquisition of the United Kingdom’s Elliott Group in May 2005, and Wraith and GE Modular Space in 2007. Finally, in October 2007 the enlarged Algeco was merged with a leading United States-based business, Williams Scotsman.