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Growth plan
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Fraikin's acquisition of Lex Transfieet moved the French-owned firm from a UK bit player to a top-three performer in contract hire. Andy Salter gets the low-down on the deal.
When CM interviewed Fraikin managing director John Ball in January 2005 he let slip that the company was on the acquisition trail. At the time he was tight-lipped about who might be the target, but it was clear the company meant business. In France Fraikin is a giant with more than 34,000 trucks on contract from 220 locations throughout the country, and parent company Eurazeo wasn't going to be satisfied with the UK's relatively minor standing in the portfolio.
Back in January 2005 Ball told us: "We have to start accelerating the growth of the company in the UK. Organic growth on a pare of 2,000 vehicles won't be fast enough, so we must look at growth through acquisitions where appropriate."
We now know that Ball had already opened tentative negotiations with the RAC, then owner of Lex, with a view to acquisition, although it was very early days in the negotiations. In late December 2005, the deal for the purchase of Lex Transileet was formally signed and Fraikin leapfrogged from being an also-ran to a major-league player in the UK contract-hire sector, and a significant part of Fraikin's European portfolio."With the acquisition we went from contributing 8% to Fraikin's total revenue to 25%," says Ball.
Shared culture
Hinting at the takeover last January. Ball outlined how any target had to share the same culture as Fraikin and he contends Lex Transfleet offered just that, but with a significant increase in volume, The [Lex] Transfleet acquisition has seen our total rental fleet increase to 1,4(X) vehicles, the contracthire fleet now stands at 5,500 and we have an additional 8,000 vehicles on fleet-management contract," says Ball. For the uninitiated, fleet management is effectively contract hire but with the capital acquisition of the vehicle sitting with the end user. This is a product Fraikin was previously unable to offer. "For some companies owning the capital is important, often for financing reasons and particularly among the big fleets," he says:' In the past,`old' Fraikin was unable to play in that space. Now we have a product that will satisfy the customers' requirements, be it on a fixed-price or cost-plus arrangement."
For a small player in this country to buy one of the UK giants came as quite a surprise to industry watchers and many expected a cultural clash as the two firms came together. Among those fearing Anglo-Gallic friction was Ball himself. But, he says, the businesses have merged extremely well. "There was none of the 'OK, you're French, you're smaller than us, what do you know?' attitude," he says."And the two learns have come together extremely well. It's a measure of the complementary nature of the two businesses that as they have come together redundancies have been minimised. I prefer to see the deal as a merger rather than a takeover."
The first 100 days after the acquisition have seen Ball working to bring the two businesses together and fully integrate the cultures. He is now looking for the company to start generating growth for the parent. The first point of attention is customer retention and he is expecting some significant improvements on that score: "In 'old' Fraikin one of our strengths was in retention of customers due to high service levels, and I see that as one of the key aims of the business this year," he explains. "1 want to see our renewal business strengthen and we will build our strategy around that goal."
The company has already started signing and re-signing contracts — particularly in the public sector — with Dumfries & Galloway, Copeland and Kingston-upon-Thames councils all on the client list.
Further down the line, the main objective for Ball and his team is to make Fraikin the market leader. "I want to be first choice for customers seeking a service-oriented solution,"he says. For which read .don't expect to haggle on price'.
Ball puts a lot of store around service and offering a tailored solution to customers. indeed, he wants to blur the traditional demarcation lines between rental, contract hire and fleet management and turn it to a customer-focused approach where "we offer what the customer wants, which pool of product it comes out of is largely irrelevant to the end user, provided we deliver the service required".
This year Fraikin has ,C60m to spend on new vehicles, says Ball, with most of that spend going to service contract-hire customers. "We don't expect to add much to the rental fleet this year," he says.
Market paralysis As with many truck buyers, the current debate around EGR and SCR as a solution to the forthcoming emissions legislation is creating a great deal of confusion for the rental buyers. "Couple this with the digitach legislation and there's been too much change too quickly," says Ball. "We're seeing a paralysis in the market as buyers really don't know which way to turn."
Ball is sitting on the fence regarding SCR and EGR, although he would like to see Euro5 incentives to simplify some of the choices. "I'm very nervous about the residual value implications of Euro4 as it is a short-lived piece of legislation," he says.
For now he is satisfied with the size of the current enterprise and, unlike the last time we met, is not contemplating any further acquisitions — although he doesn't rule them out. Frai kin's purchase of Transfleet has elevated the company to a .E100m turnover business and the focus for the next 12 months is on consolidation, before a significant organic growth plan will no doubt kick in.
"Let's concentrate on the things that matter to our customers," Ball sums up. "We're not interested in driver management or warehousing management and I've no desire to get into 4PL, whatever that might he. Customers want a service they can rely on and we'll deliver against that need." r