Royal Mail is expanding operations in Canada

Royal Mail is to acquire Rosenau Transport for C$350 (£205m) to expand its Canadian operations. Zaven Boyrazian explains the details.

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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 Royal Mail share price has its risks

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. 

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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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