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The share price of Panalpina has rebounded strongly since second-quarter results were released this year, and now trades within reach of a 52-week high of Sfr138.8 (US$148.80), boosted by a bolt-on deal announced today (See today’s Coolstar post).
Management is adamant it will continue to create value for shareholders, either delivering organic growth or acquisitions, and is also “flexible” when it comes to other options, including a transformational deal.
Peter Ulber (pictured below), a freight forwarding veteran who joined Panalpina after almost 30 years at domestic rival Kuehne + Nagel, is also a board member of the Ernst Göhner Foundation, which controls the Swiss freight forwarder.
In this exclusive interview with The Loadstar, Mr Ulber talks about the chances of Panalpina buying CEVA, the forces driving consolidation in the forwarding industry and how to respond to technological disruption.
How has M&A deal-making in the freight forwarding business changed over the past 20 years?
“Around a good 10 years ago, a lot of pure freight forwarding companies had only made small acquisitions, and the trend at the time was to be looking at contract logistics and cross-selling potential. Today it is more often about value creation rather than purely strategic considerations.”
How is technology going to change the way consolidation takes place over the medium term? Several players talk about size as being everything in the game. Is that right?
“I’d definitely agree that technology is going to drive further consolidation, there is so much room. If you look at the big five we have not even 20% of market share, so there is a huge market to be consolidated, and we are ready.”
What was the attraction of buying Interfresh, the deal announced today?
“The closing of that deal is the continuation of a strategy that allows the company to get deeper in the perishables market, because over the long term this is a very good market to be in. And if we cannot grow organically in that area, we will continue on this path.”
There has not been any disclosure of the value of the deal, but given its size I safely assume is neutral to earnings?
“You are right. All of these deals are not huge, but there are few of those out there. On the big scale, it is neutral to earnings.”
On which verticals are you keen to focus?
“From a pure vertical point of view, we are focused on the perishables industry. More broadly, I do not see any new trends where the same is happening.”
With Panalpina’s market cap now Sfr3.2bn, are there bigger deals on the horizon – given Panalpina’s strong balance sheet, what are the chances of a transformational deal of, say, of $500m, or even over $1bn in the next five years?
(Note to the reader: this was a tricky one, because Mr Ulber, who in the early days of his career worked in the private equity jungle, now sits both on the board of Panalpina and the foundation. But his reasoning seemed to align the interest of shareholders to those of the foundation.)
“It is completely realistic. Our firepower is stronger than that, and five years ago, when we came out of a situation where the company was in the red, we knew we had to put Panalpina in a position that would give us every option, depending on the market – either going for organic growth or acquisitions.
“The goal was to get the company to that point and we are now at that point. And we knew we’d need a clear corporate structure, a scalable IT platform, the money and good people, and now we can move on because we have all these options.”
“And I believe we have pretty much reached the point where we are totally flexible to go into any of these directions, or a combination of those.”
What about the cultural barriers to M&A – would it make more sense to join forces or agree a friendly deal with a domestic freight forwarder, or European and US players?
“Again, we have options. Option one, we have an international network, so we can integrate other networks, actually creating synergies that way on the freight forwarding side.”
“Then there is an opportunity, of course, when you look at European road networks. We do not have one; we do not have a traditional haulage network as opposed to the other big freight forwarders. I consider this to be an old, possibly soon outdated, business model, so we could enter the market with new technology.
“The same applies on the logistics side.”
Panalpina and the foundation – does Panalpina need to be a public company?
“Whether it makes sense or not, there is a bit of history here (on this note, click here to read our coverage in November 2016). The vision is that the foundation wants to be a strong shareholder, regardless of whether acquisitions ensue or not.”
What about the valuation of CEVA Logistics after the latest news that a deal is off the table – and how do you value assets that are a mix of contract logistics and freight forwarding?
“Apart from CEVA, I think 10 times (EV/ebitda) is fair across the industry, with contract logistics trading at a lower multiple and freight forwarding operations at a higher multiple.”
Would Panalpina buy CEVA; would it fit with your business proposition?
“It has been talked of as a takeover target for many years. I think on paper its contract logistics operations are attractive and offer synergies to many other players, too. But there would need to be agreement on price and, as I said, it has been on the market for many years and nobody is fighting for it.”
Amid the hype surrounding the sector, are the main players’ valuations out of whack with reality?
“The reality is that there are people investing in the forwarding industry, and what makes this business so attractive is that it is fragmented and has not consolidated.
“And – although people don’t like to say it – this is a very traditional business that has not changed much from 20 years ago. Again, we are at a breaking point as far as the technology is concerned, and it will fundamentally change the way freight forwarders do business.”
What are your thoughts about the new logistics companies coming out of Silicon Valley and the risk of disruption?
“I agree that digitisation and new technology will somewhat disrupt the industry. But I believe some of the majors, including Panalpina, will benefit from the new technology. It is about converting the old way of doing business to the new way.
“We are watching start-up companies very closely and, frankly, a lot of them underestimate the complexity of this business.
“The new technology is available to all of us.”