Toll’s acquisition ambition limited by investment concerns
The US$6bn offer by UPS to buy TNT Express is one of the biggest potential deals in the logistics sector since Deutsche Post went on its spending spree in the middle of the last decade.
It might well be part of wider trend towards consolidation in logistics with the container shipping sector being another likely candidate for a burst of take-over activity.
However, the hazards of such activity are illustrated in Toll Group’s recent results. The Australian diversified logistics provider has been an aggressive purchaser of a variety of assets across Asia. In part, these acquisitions have the ambition to make Toll a leading forwarder both in the Asia-Pacific region and globally.
Yet there has been a cost to this ambition. Although revenue continues to grow at over 4%, profits after depreciation have fallen, whilst investment returns have suffered. For 2011, ‚return on invested capital‘ was 7.1% as compared to 8.8% in 2010. In part, this has been due to weaker market conditions; however this only highlights that it can be hard to make acquisitions justify their price.
This has not deterred Toll from its strategic goal, yet the management is becoming sensitive to the issue of the impact of an acquisition based strategy on capital employed. Brian Kruger, Toll Group’s CEO commented that "We are still firmly committed to our global forwarding strategy however once we achieve our short-term scale goals through additional bolt-on acquisitions that will see our total invested capital at about AUS$1bn (€790m/US$1bn), there will be a pause in acquisitions until we see a return to acceptable returns." He commented that the company now had the "key goal of lifting the return on capital employed", aiming at around a 5% EBIT margin.
Still, Brian Kruger asserted that Toll continues to look at investing a further AUS$200-$300m on forwarding companies around the world. The company was looking for a 50% increase in volumes handled by its forwarding division in order to affect greater economies of scale and be competitive with the ten largest global forwarders.
Toll Group is both ambitious and impatient. It wants to achieve growth fast and acquisition is the means to do this. However, this means integrating and re-orientating the companies it buys. This can be hard work and it is a lesson that applies not just to Toll Group.
Quelle: eyefortransport
Portal: www.logistik-express.com