Spend and deliver: UPS acquisition of Overnite
Even UPS has its gaps. The world’s largest package delivery company plugged an obvious one with yesterday’s acquisition of Overnite. The deal takes UPS into less-than-truckload freight services in the US for the first time, after several years watching the success of rival FedEx in that area.
Overnite is no steal for UPS. The delivery group is paying a 46 per cent premium, while giving no guidance on the synergies available to justify such a chunky uplift. There should be some. UPS will be able to squeeze some benefits from having a ground freight network to link with the air freight operations of Menlo Forwarding. From the customer perspective, UPS will be able to offer a more complete set of products. Overnite might also benefit from being able to use the powerful UPS brand.
The Dollars 1.25bn acquisition is, anyway, not big enough to have a real impact on UPS given its market value of over Dollars 80bn. But it is still UPS’s biggest ever deal. It demonstrates that, in the rapidly consolidating logistics industry, UPS is not scared of paying up for the right opportunities. With a rare AAA rating and net cash of Dollars 2bn, it has plenty of firepower.
Having filled an obvious gap in the US, UPS could turn its attention to faster growing international markets for its next move. Exel, the UK-based logistics group with a strong international presence, would, for example, be a bigger bite. Investors should not underestimate UPS’s appetite.
