f oritune Despite its low profit margins, acquisitive companies should seriously
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consider the haulage industry, says a leading financial analyst. Janet Morris investigates this surprising claim.
VWith all the fuss about rising
fuel prices, and some hauliers calling for militant action to make the government do something about it, you might be forgiven for thinking that road haulage is not the most promising business to be in at present. High overheads, unfair competition from abroad and falling profit margins would appear to be enough to scare off many newcomers to the industry.
However, according to a recent report from financial analyst Plimsoll Publishing, there is plenty of scope for speculators looking for rich pickings. It announced that nearly To% of road haulage companies are ripe for takeover. In a survey based on public records held by Companies House of 362 industries, including 1,040 limited and public limited road haulage companies, it concluded that 92 are likely takeover candidates.
But why would anyone want to invest in road haulage, given that average profits for independent hauliers are running at less than 5%? And which companies are on the target list?
To find out you'll have to fork out f45o for an "acquisition pack" from Plimsoll, which makes its money this way and is not giving anything away for free in this sensitive area. After all, if word got out it could affect the market price.
Plimsoll manager David Pattison believes that road haulage is frill of "fundamentally very good businesses that crucially are currently under-performing'. And he doesn't believe that the average sub-5% profit margin is a problem, either.
"Some of that's a myth," he says. "A lot of companies just get on with it and are doing much better than that. And road haulage as an industry is comparable with most of the others we have analysed."
In any case, doing well isn't necessarily going to make you the most attractive option to a potential buyer. "A vulnerable business with the potential to do well with the right investment makes a good takeover candidate," says Pattison, who believes that in this respect haulage could have a lot to offer. "Timing is everything," he adds. "That's what is important when it comes to takeovers—not economics or who is in government. It's all down to how individual companies are performing.
"There are people looking around all the time for the right acquisition," he points out. "We help them by providing this discreet service. They want to be able to move before anyone else gets to hear about it, because that could create a buzz and put the price up."
A quick ring round the industry brought the general response that while many hauliers might be happy to play along if someone wants to make them an offer they can't refuse, it's not a subject that particularly interests them. There also seems to be a general view that the money is there to be made if you haven't got all the overheads to contend with.
David Steven, managing director of D Steven & Son, which operates from four depots in Scotland, believes that the less lucrative companies could be the most attractive to big business. He believes that many hauliers get into trouble because they borrow beyond their means to start with.
"If a firm has high finance coupled with high operating costs, and a big, cash-rich company comes in and takes over, that could be enough to turn it around," Steven points out. "If you have the capital to take borrowing out of the equation and can afford to buy vehicles outright, then the money is there to be made."
However, you don't have to be in trouble to be attractive to speculators. Andrew Downton, managing director of CM Downton in Gloucester, is part or the thriving Fas tMag distribution group. He has been contacted by potential buyers in the past, and says he Isn't bothered if he turns up on Plimsoll's list.
"Road haulage is no different from any other mature industry, where serious growth occurs partly through acquisition," says Downton. "It is a cash-hungry industry where everyone is looking for critical mass or economies of scale. This can often be the only route to avoiding eroding profit margins. Many hauliers are industrious, flexible and understand the need to c stantly change."
But before all you operators there get too carried away with thought of a seller's market, Freight Transport Associatic economist Simon Chapn sounds a cautious note: "Pr margins within the industry an age 3-5% at present, and it's diffii to see how that could be an atti five proposition to many buyen you're looking at a business IN value-added services such as sl age and packaging, then perhap makes more sense, but haul. alone would be difficult to justi Chapman adds: "The Mimi list is probably full of very mi.: propositions. A diversifying bi ness that is basically sound but t has run into trouble by ON extending itself could also be a sonable proposition for a bul But if you're talking solely ab, moving freight from A to B, the can't see it being a big prospe