Just three months after GXO Logistics (GXO -1.41%) announced it had agreed to a $1.3 billion deal to take over U.K.-based Clipper Logistics, the financial part of the transaction is now complete.
GXO said Tuesday that it had completed the transaction, though U.K. law requires that the two companies must be run independently for an intervening period until the U.K. Competition and Markets Authority can complete its review. In an interview with The Motley Fool, CEO Malcolm Wilson said he was hopeful that GXO will clear that final hurdle by September.
With its takeover of Clipper Logistics, GXO has wasted little time in pursuing the mergers-and-acquisition strategy that investors expected when it split from XPO Logistics (XPO -3.06%) last August. Part of the justification for the spin-off was so that both companies could pursue acquisitions that were in each company's own interest, and that's exactly what GXO is doing here.
Clipper brings a number of valuable assets to the table for GXO, the world's largest pure-play contract logistics company. First, Clipper is particularly strong in Germany (giving GXO crucial scale in Europe's biggest economy) and in Poland, allowing GXO to expand into Eastern Europe.
Clipper is also strong in life sciences and healthcare, which will give GXO a significant boost in a major industry that it has not traditionally had much exposure in. Lastly, Clipper also has a top-notch reverse logistics operation, for processing returns. The ability to share technology between the two companies in areas like returns processing is a key benefit of the acquisition.
Wilson said the company was targeting $48 million in cost-savings synergies from the acquisition, and he sees hundreds of millions of dollars in accretive revenue over the long term thanks to scale advantages and cross-pollinating technologies.
Image source: GXO Logistics.
What's next with the acquisition
Wilson stressed that both companies are doing incredibly well, so the most important part of integrating them is to make sure that momentum continues. Importantly, there is no overlap of major customers, giving GXO a huge opportunity to cross-sell new services and markets to its customers, and multinational clients will benefit from the merged companies' increased scale, allowing them to do business with GXO in more countries.
Indeed, both companies are growing briskly. Clipper put up 33% revenue growth in its most recent financial report for the six months ended on Oct. 31, 2021, while GXO posted organic revenue growth of 19% in its first quarter.
Stock prices in the transportation industry have pulled back due to concerns about rising interest rates and a potential recession. But GXO's recent results show nothing of the sort, and are especially impressive compared to those of other e-commerce companies that are struggling at the moment. Amazon, for example, is subletting excess warehouse space and abandoning plans to open new warehouses after reporting a decline in first-party sales in its first quarter.
A proven playbook
XPO Logistics was one of the top-performing stocks of the 2010s as it used a "roll-up" strategy, acquiring other companies (and selling off the parts it didn't want) to become one of the biggest logistics companies in the world.
Now GXO is using a similar playbook to its own advantage, gaining scale, improving its technology, and setting itself up as an even more attractive partner for the omnichannel retailers, consumer packaged-goods companies, and others that count on it to manage their logistics operations.
Stock prices across the sector have fallen in recent months, which could set up the company for another acquisition in the not-too-distant future. In fact, Wilson said it would look to opportunities in the North American market.
GXO hasn't escaped the market pullback, as the stock recently hit an all-time low around $50, but that's another reason to give the stock a closer look as it trades at a price-to-earnings ratio of just 18 based on its full-year earnings-per-share guidance of $2.70 to $2.90 -- and that doesn't include the Clipper acquisition. If the company can continue to deliver double-digit organic growth and make opportunistic acquisitions, the stock should definitely be a winner over the long run.
