GXO Logistics stated on Sunday, February 20th, that it has achieved a preliminary deal to buy Clipper Logistics of the United Kingdom for about $1.3 billion in cash and equity.
GXO (NYSE: GXO) would pay 75 percent in cash and 25 percent in new stock to buy Clipper’s (CLG.L.EB) common shares under the “potential offer.” The deal, at 920 pence per share ($12.50), represents an 18% premium over Friday’s close.
According to a news statement, the merger will expand “potential for both organizations in the high-growth e-commerce/e-fulfillment industries.” The developing industry is a primary focus for GXO, which broke off from XPO Logistics (NYSE: XPO) last summer to become the world’s second-largest contract logistics company.
Clipper is an omnichannel retail logistics service, with e-commerce and returns accounting for two-thirds of its revenue. The company is divided into two divisions: value-added logistics (which includes e-fulfillment, reverse logistics, and other logistics services), and commercial vehicle sales and service.
When it purchased CE Repair from the Netherlands in November, it added electronics repair services.
“Our two firms have extremely complementary service offerings, customer portfolios, and presence in the UK and Europe, and we are natural partners with a very good cultural fit,” GXO CEO Malcolm Wilson said in a statement to FreightWaves. “We believe that by using technology and infrastructure overlap in the joint venture, we may generate extremely large efficiency gains.”
Clipper’s most recent full year ended April 30 generated sales of 696 million pounds ($946 million) and earnings before interest, taxes, depreciation, and amortization of 82 million pounds ($111 million) (11.8 percent EBITDA margin). For the fiscal year ending Oct. 31, the company’s net debt was 11.2 million pounds ($15.2 million).
Based on trailing performance, the transaction price suggests a less than 12x enterprise value-to-EBITDA multiple.
The businesses provide comparable services and have some consumer overlap. However, given the combined entity’s bigger size, the merger is projected to create cross-sell opportunities. GXO also acquires expertise in returns and repairs, as well as access to Clipper’s e-commerce fulfillment technology. Clipper is also expanding its physical presence in Germany and Poland.
In the first two years, cost synergies were deemed “substantial,” with the focus on procurement benefits from increased scale and operational consolidation.
Clipper shares have surged 26 percent since the close on January 27, the day before the offer. The 920-pence offer price reflects a 49 percent premium over the previous day’s closing price and a 32 percent premium over the three-month weighted average share price.
Once a solid offer is made, the transaction is subject to pre-conditions, completed due diligence, and debt financing. The final purchase price may vary due to changes in exchange rates. Clipper shareholders will be able to “mix and match” payout portions of cash and GXO stock.
Insiders owning 23.3 percent of Clipper’s stock, including Executive Chairman Steve Parkin, have agreed to the terms in writing and will receive half of their compensation in GXO stock.
