Does GXO plan more acquisitions after its £1.3bn Clipper bid?

A strong balance sheet and a customer base of global brands make GXO Logistics well placed to invest in organic growth and explore new acquisitions, Neil Shelton said, days before announcing the £1.3bn deal to buy Clipper Logistics.

On the back of “phenomenal” fourth-quarter results, GXO Logistics [GXO] could be looking to strengthen its position through further bolt-on acquisitions, Neil Shelton, chief of strategy, told Opto.

The company, which announced on Monday it plans to buy UK-based Clipper Logistics [CLG.L] for £1.3bn in a cash and share takeover deal, is set for a “strong performance beyond 2022”, Shelton said. The deal, which has now been agreed, values Clipper at £943m, the Financial Times reported.

GXO already works with brands such as Apple [AAPL], Nike [NKE], Nestlé [NESN] and Whirlpool [WHR], as well as other leading companies in a range of sectors including healthcare, construction, agribusiness and automotive. The new deal will potentially add Clipper’s customers, which include UK retail giants John Lewis [JLH.L], Asda and Marks & Spencer [MKS.L], to its growing client base. 

“This potential acquisition would enhance GXO’s position as a successful pure-play logistics leader,” CEO Malcolm Wilson said in a statement. “We believe we can achieve very significant productivity opportunities by taking advantage of technology and infrastructure overlap in the joint enterprise.”

Record Q4 sets the stage for more growth

GXO had a “fantastic quarter” with record-breaking results. Q4 revenue totalled $2.3bn, up 28%, bringing full-year revenue to $7.9bn. As Shelton explained, organic growth increased by 19%, “the strongest quarterly growth that we printed last year up against our toughest year-on-year comp”.

“Importantly, the wins that we’ve announced and the strength of our sales pipeline, which is at absolute record levels exiting 2021, really highlights that GXO is on an amazing trajectory for 2022 and beyond”.

Shelton highlighted that GXO is seeking to strengthen its ties with existing customers, and also win over new ones. “Our top 20 customers now are working with us in three countries, and 80% of them gave us a new facility over the past 12 months,” he said, adding that this is a “fantastic land-and-expand opportunity” given that “so many of these big customers are global blue-chip brands.”

Crucially, Shelton points out that GXO managed to eat into its rivals’ market share as well. “We took just over 30% of our growth coming through from our competitors,” he said.

“Importantly, the wins that we’ve announced and the strength of our sales pipeline, which is at absolute record levels exiting 2021, really highlights that GXO is on an amazing trajectory for 2022 and beyond” – GXO chief of strategy Neil Shelton

Acquisitions lined up

With its share of the logistics market already growing, GXO could further strengthen its position through further bolt-on acquisitions, particularly as it has a significant amount of cash on balance.

“We’ve got great optionality to look at bolt-ons and clearly there’s been a lot of M&A around the logistics space, which highlights the attractive nature of that industry, and the multiples being paid have been rising over a period of time,” Shelton said.

Though he pointed out that the company will also be “investing in our own business for organic growth”, Shelton explained that “we will have the option of considering bolt-ons […] to enhance the geographic position, to drive new vertical expertise.”

He cited the acquisition of the majority of Kuehne + Nagel’s [KNIN] UK contracts, which closed in January last year, as a key example, as well as deals with Currys [CURY] and BT [BT]. “[It] really gives us a fantastic position in UK technology,” Shelton said.

“It will be those sorts of bolt-on acquisitions that we may consider. They’ve got to enhance our growth opportunities, they’ve got to be accretive to GXO’s shareholders and, yes, we can consider opportunities in the future, given the strength of the balance sheet that we currently have.”

“I imagine we’re always kind of looking around our industry. It’s a fantastically fragmented industry,” Shelton continued. “We just want to ensure that when we are considering any bolt-on that it drives value for our shareholders.”

“I imagine we’re always kind of looking around our industry. It’s a fantastically fragmented industry. We just want to ensure that when we are considering any bolt-on that it drives value for our shareholders” – Shelton

Tech helps GXO stay ahead of the competition

As the company continues to expand and innovate, Shelton explains that “automation is helping us, and technology is helping us to take share from some of our smaller rivals”.

He hopes that innovations in technology will help to win over more potential clients: “Where we’re focused is driving predictability for our customers using technology as a strategic solution to their problems. And we’re seeing from the strength of our sales pipeline that there is no shortage of opportunity from existing and indeed potential customers wanting to use this as an opportunity to fix an important part of their supply chain.”

Shelton also points out that the company has the edge over its rivals in terms of technology adoption. “If you look at the technology side, the industry is very under-automated — about 5% automated. We’re at six times that level, and we will continue to remain ahead of the field. Today we are in the field piloting around 200 pieces of new technology from about 100 different suppliers.”

With this in mind, he hopes that GXO can continue to stand out from the rest of the crowd in the logistics space. “I don’t think there’s anybody who is able to test, pilot and deploy technology the same way that we are,” he said. “Having that predictability is really helping us to set us apart.”