Mueller Drives Logistics Merger

Two medium-sized specialist food and drink logistics providers in the UK are being merged by the owner of Mueller Dairy Group, a large German food company.

The companies concerned are Culina Logistics, which specialises in handling chilled food products, and Baylis Logistics which is largely involved in ambient activities. The merger of their businesses will take effect from January 1, 2008, and the newly-merged company will be known as Culina Logistics Limited.Theo Mueller took a 50% stake in Baylis Logistics last year and the new group will be principally owned by his holding company.

Culina is also owned by Theo Mueller and has played a role in distributing the highly successful range of yoghurt-based products of Mueller's principle investment, Mueller Dairy Group. However, Culina is not a part of Mueller Dairy. Rather, Theo Mueller appears to be making a strategic investment in food logistics, possibly using the considerable volumes of Mueller Dairy to assist Culina.

The former chief executive officer of Culina moved to Baylis Logistics in 2005 and the merger of the two companies and Mueller's previous investment seem linked to this.

Culina is believed to have sales of around £80m(€120million) and Baylis Logistics of around £40m(€55million), with the two companies stating that the new company will have sales of £125m(€180million). Culina Logistics has operations in Italy and Germany. However, it is unknown whether these are particularly substantial or will play a role in the future of the group. In addition to Mueller Dairy Group, Culina has companies such as Danone, Unique and GUI as customers.

What appears notable about this deal is that an investor with a business as dynamic as Theo Mueller is so keen to invest in food logistics. The UK food logistics sector is highly competitive, dominated by large and aggressive retailers. Of course it may be simply an opportunistic move by Mueller, realising the increase in shareholder value that he can achieve through the merger.

Strong Results Position K+N Well for Future Acquisitions

23/Oct/2007

Swiss global logistics provider Kuehne + Nagel has announced yet another strong set of quarterly figures suggesting an acceleration in its already high rate of growth. The company's EBITDA is up 23.2% over the past quarter at CHF241milloin, compared to the past nine months which show a 16% increase. Turnover has increased less vigorously, but is up 17.6% over the quarter compared to 15.7% over the nine month period. EBITDA for the nine months January to September was CHF709million (€426million/$603million).

In seafreight, which is the K+N's biggest business, the company appears to be continuing to gain market share. Container shipping has had a mixed picture over past year, but K+N has recorded an increase of 16% in volumes. At 4.2% margins have remained steady over the period with profits rising in line with volumes at 15.2%. Airfreight too has bucked the trend with a 15% increase in volume. K+N have improved margins here, leading to a 31.5% increase in EBITDA at CHF146.6million.

The area where K+N has faltered is in its rail forwarding and networked road freight. Although turnover was up a remarkable 16%, EBITDA margins are still weak at 1.2 % and the nine month figure is still 18% below the same period in 2006 despite a mild recovery in the past quarter. These figures may be influenced by investment in physical infrastructure.

Contract logistics, in contrast, is in line with the rest of the company's business, growing both sales and profits at a remarkable rate. Turnover grew 20% over the nine month period whilst firming margins to 5%. EBITDA was CHF171million.

With a balance sheet strongly in the black, K+N is clearly in a position to buy whatever is up for sale in the European, and possibly world, logistics market. However the nature of K+N's management suggests that it is keen not to over pay.

Management Secrets of Idea-Friendly Companies

New ideas are the lifeblood of many industries, yet dropping everything to pursue any faint glimmer of genius is no way to run a business. How do smart companies balance the two? By setting up standard procedures for collecting and evaluating good ideas, no matter when or where they strike. Whether it’s a company intranet, a regular meeting, or a full-time department, dedicated resources are the best way to make sure brilliant suggestions don’t slip through the cracks. These are the techniques IBM, Toyota, and Motorola use to nurture their employees’ best new ideas.

Company:

IBM

Goal:
Collaboration among many employees

Technique:
Online platform that acts as a chat room for ideas

To help connect its more than 350,000 employees around the world, IBM uses software called ThinkPlace, a sort of internal chat board and wiki. Anyone can originate an idea by posting it on ThinkPlace, and others can join in with comments, questions, or suggestions at any time. Managers can also pose questions in hopes of generating creative solutions. For example, Mary Sue Rogers, an executive in IBM’s Human Capital Management division, recently asked how the company might support an increasingly aging workforce.

In the past, new ideas were threaded through multiple layers of IBM management. Now, says Gina Poole, vice president of innovation, “There’s a focus on community-driven efforts: people connecting around the world. An idea starts in Australia and gets picked up by someone in Finland.” Today about 100,000 IBM employees use ThinkPlace to discuss ideas at varying stages of development.

ThinkPlace is also invigorated by a volunteer community of “innovation catalysts” — “IBMers with regular day jobs who are looking for ideas to champion,” as Poole puts it. “They help further ideas and get them adopted.” To select which ThinkPlace ideas and initiatives to implement, IBM has created a consortium of executives called the Ideas to Reality board. Apart from deciding which ideas to pursue, the board’s meetings (be they in person or in the virtual world) are also an opportunity to assign responsibility for new initiatives and prevent inter-departmental confusion.

For ideas that get the go-ahead, the company has a unit called Biztech which distributes the budget and expertise needed to create prototypes. Teams of five to ten employees — most of whom have other day-to-day responsibilities within the company — can spend up to 20 percent of their time working on Biztech-backed initiatives.

Company:

Toyota

Goal:
Company-wide participation in efforts to improve operational efficiency

Technique:
Alert systems and meeting templates that empower employees

Toyota has long been recognized as one of the world’s most innovative companies. Its “lean thinking” approach to manufacturing inspired now-common practices such as just-in-time production, which minimizes inventory to keep costs and depreciation down. “The environment inside Toyota’s production system is legendary,” says Tom Kelley, general manager of corporate design and innovation at Ideo. “The leadership says, ‘Show me all your ideas. You’re on the front lines, so you know this stuff better than me.’ Every time workers have an idea, they will have an audience — and they know it’s expected of them.”

Toyota’s management philosophy is based on the Japanese principle of kaizen, which means “continuous improvement.” The basic notion behind kaizen is that progress occurs one tiny step at a time, contrary to the more western notion of producing success in big, bold moves. For kaizen to work, everyone needs to have the authority to help make the company more efficient and prosperous. At Toyota, for example, every employee on the assembly line has the authority to shut the system down using the Andon — a signboard with lights, audio alarms, text, and other displays — to notify management and other workers of quality or process problems.
“The Andon comes on numerous times a day,” explains Mike Morrison, vice president of the University of Toyota, the company’s in-house managerial training facility. “Let’s say you and I are working on one part of the interior, and you detect a rattle of some kind. I stop the line and everyone in our group comes to see how we can resolve it. It’ll be written up and reported.” Such interruptions are viewed as positive, alert moves to assure quality — not as problems that make everybody wait.

The company has also made feedback from its employees a continuous part of the idea-generation process. For example, Toyota utilizes a framework at meetings called a PDCA (for “plan, do, check, act”) cycle. “It’s just a one-page document for displaying problem statements and developing the final move and the result,” Morrison says, “but it’s a useful guide that ensures you don’t skip any steps in the brainstorming process.”

Company:

Motorola

Goal:
Pursuing internal ideas in search of the next big thing

Technique:
A program that functions like a venture-capital firm inside the company

Motorola’s Early Stage Accelerator (ESA) program applies venture-capital methodology to ideas within the company. Started by Jim O’Connor in 2003, the ESA uses portfolio theory to assess in-house proposals, treating them like start-ups. “The core purpose of ESA is to save good ideas from being killed and channel them into products as fast as possible,” O’Connor says.
O’Connor identifies three stages of the program: ideation, where the ESA gathers suggestions from employees, vendors, and customers; commercialization, where promising ideas get funding and testing; and market ready, which prepares the final product for commercial release.
At a tech company like Motorola, ideation is the easy part. “Across a company of 66,000 people, 25,000 of them engineers, there are ideas just all the time,” O’Connor says. “But you can’t spend an inordinate amount of time on thousands of ideas.” The ESA studies close to 100 proposals a year. Roughly 30 of those receive funding, and only 15 of those are eventually released for sale.

O’Connor says many ideas still come from old-fashioned conversation — in meetings with customers, during engineering reviews — but like IBM, Motorola also uses a company intranet to capture new ideas. Promising suggestions are assigned to an ESA team member for evaluation, and those that prove worthy graduate to the commercialization phase, where the ESA dedicates funding, assigns a team of engineers, sets milestones, and monitors progress closely. The program also sets an aggressive timeline: the traditional tech development schedule is three or four years; the ESA averages 18 months.

O’Connor and his team use four criteria to assess each proposal: relevance to Motorola’s long-term strategy and targeted markets; projected financial return; execution risk (projects that are aligned with Motorola’s core business tend to work out better); and the previous success of the team behind it. Within each criterion, the ESA has a set of about 100 questions; senior management evaluates the proposals with a software tool called I-Growth, which generates quantitative analysis.

But qualitative assessment remains important, too. “We ask questions like, ‘What is the relevant problem we’re trying to solve?’” O’Connor says. “Sometimes in tech, the tendency is to get complicated. We could be developing a great technology that no one wants to use.”

What is Supply Chain?

A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. Supply chain activities (aka value chains or life cycle processes) transform raw materials and components into a finished product that is delivered to the end customer. Supply chains link value chains.
Today, the ever increasing technical complexity of the distribution of standard consumer goods, combined with the ever increasing size and depth of the global market has meant that the link between consumer and vendor is usually only the final link in a long and complex chain or network of exchanges.
This supply chain begins with the extraction of raw material and includes several production links, for instance; component construction, assembly and merging before moving onto several layers of storage facilities of ever decreasing size and ever more remote geographical locations, and finally reaching the consumer.
Although many companies and corporations today are of importance not just on national or regional but also on global scale, none are of a size that enables them to control the entire supply chain, since no existing company controls every link from raw material extraction to consumer.
Many of the exchanges encountered in the supply chain will therefore be between different companies who will all generally seek to maximize company revenue within their sphere of interest but will have little or no basic knowledge or interest in the remaining players in the supply chain except those to which it is directly linked.

The eight key processes in SCM are:

Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development and commercialization
Returns management / reverse logistics

The role of Private Equity in Logistics M&A

The proposed takeover of Christian Salvesen by Norbert Dentressangle illustrates that the market for mergers and acquisitions in the logistics sector continues to be strong. The industry's low margins and tough competition is determined by the eagerness of so many small and mid-size hauliers to grow either by cutting margins or by buying their neighbours.
But trade buyers are not alone. Figures available to TI suggest that around a third of the deals (by volume, not value) executed in the road freight and contract logistics sector over 2006 involved private equity (PE). However the nature and size of the PE deals are quite different to the vaulting ambition of the big trade buyers, such as Deutsche Bahn, Kuehne + Nagel (K+N) or DPWN.

Of course there are exceptions, the biggest of which, of course, is Ceva/EGL created by the London based equity firm Apollo. But this highlights why ambition may be so rare in PE deals in the sector. Ceva has a huge debt burden which it has struggled to fund. Whilst its growth and operating profits have been respectable they are swallowed up by the cost of interest.
Ironically the really big deals are dominated by the infrastructure funds, such as the purchase of OOCL's container terminal business by Ontario Teachers Pension Plan or Associated British Ports by Goldman Sachs. But here the criteria are different, with pension plans actually attracted by the size of capital investment required.
What conventional private equity really likes is to take a business with sub-optimised potential and groom it for a sale. A good example of this is Platinum Equity's purchase of Hays Logistics in 2004 and its sale in 2006 to K+N as ACR Logistics. The company was rationalised and put on a sufficiently stable footing for K+N to pay an attractive premium - but essentially it was an 'arbitrage' deal.
Private Equity now dominates a huge part of world's economy, but its nature should be understood. If it is big vision that is required in the logistics sector - look elsewhere.
TI's latest report on Mergers and Acquisitions in the global logistics industry – Global Logistics Strategies 2008 - is published next week. Contact Sarah Smith to reserve a copy. ssmith@transportintelligence.com.