Last week General Logistics Systems (GLS), the subsidiary of Royal Mail (LSE:RMG), agreed to acquire Canadian logistics firm Mid-Nite Sun Transportation. Mid-Nite, which operates under the name of Rosenau Transport, is one of the largest independent freight carriers in Western Canada. And its addition into GLS’s logistics network will enable Royal Mail to cover most of the country’s population for parcel and freight deliveries.
The details of Royal Mail’s deal
The price of this acquisition by the UK firm is C$360m (£205m), which will be paid using a mixture of existing cash on Royal Mail’s balance sheet as well as exercising some of its borrowing facilities. However, it is worth noting that regulators have yet to approve the purchase so it could still be derailed.
Over the last 12 months, Rosenau reported revenues of C$175m (£102.5m) and underlying earnings of C$41.6m (£24.4m). The firm provides a direct link to existing US West Coast GLS operations. Consequently, the acquisition may lead to synergies that lower operating expenses as well as providing more opportunities for customers. Therefore, management believes that Rosenau will make a meaningful positive contribution to earnings and cash flow this financial year.
Royal Mail has estimated that Canada’s parcel and freight market is worth roughly C$25bn (£14.6bn). And it continues to grow by 5% each year. This leaves a lot of room for expansion as the company seeks to acquire a more significant market share.