One of the leading third party logistic companies, C.H. Robinson Worldwide, Inc. (CHRW - Analyst Report) recently announced to acquire Polish freight carrier Apreo Logistics S.A. The deal terms remain undisclosed.
Apreo specializes in truckload offerings that involve dry van and temperature controlled freight transportation. In addition, the company has warehouse facilities and deals in ocean and air freight forwarding.
C.H. Robinson is expected to benefit from Apreo’s gross annual revenues of more than $100 million and a market base comprising 2000 customers. Apreo is also expected to add infrastructural capabilities with 21 offices across Poland and a work force of 300 employees.
C.H. Robinson did not specify any timeline for closing the acquisition but stated that the deal is subject to regulatory approvals from the Polish Office for Competition and Consumer Protection.
Despite the looming economic backdrop and a slow down in the freight demand, C.H. Robinson remains keen on expanding its footprint via acquisitions.
Although the near-term outcomes are too early to project, we foresee long-term synergies arising from these acquisitions. Given the on-going Eurozone crisis and dwindling financials of small European companies, industry big wigs like C.H. Robinson are leveraging the opportunity of penetrating into a potential market of Europe.
Since poor market conditions are weighing on the market value of these companies, the acquisition cost remains comparatively lower. Further, the European freight market remains highly fragmented and mainly constitute small operators that cater to localized regions. This makes them all the more susceptible to acquisition by larger peers.
However, a large carrier like C.H. Robinson with substantial financial and infrastructural facilities would like to seize the opportunity of integrating its operations through various acquisitions in Europe. The strategy can be well demonstrated by the emerging expansion trend in the parcel delivery industry.
Companies like FedEx Corporation (FDX - Analyst Report) and United Parcel Service, Inc. (UPS - Analyst Report), pursued expansions plans through multiple European acquisitions. While, FedEx acquired Opek Sp. z o.o., a Polish courier company and TATEX, a French B2B Express transportation company. United Parcel Service bought Kiala, a European consumer delivery company and is also on the verge of completing the acquisition of Dutch shipping company TNT Express.
However, over the near term, heavy capital expenditures involved in funding acquisitions can lead to financial distress. The company may finance its acquisitions either with available cash, issuing equity or raising debt. In such an event, the key concern would either be the liquidity position of the company or the margins, which may be weighed down by the rising interest burden due to loans.
We are currently maintaining our long-term Neutral recommendation on C.H. Robinson. For the short term, the company holds a Zacks #3 (Hold) Rank.