Delivery Services. An Industry Report about the Corporate Finance Practices

M&A, Dividend Policies and Ownership/Capital Structure

Term Paper, 2015

16 Pages, Grade: 17

Arthur Ritter (Author)



The delivery service industry includes mail and package deliveries for commercial and consumer use by road, air and ship. This report will concentrate on the package and express delivery industry, since the conventional postal and letter business is declining and mostly operated by state-owned companies, which are hard to compare with private-owned companies.

Four large companies, FedEx, UPS, DHL and TNT, dominate the market in Europe and the United States. TNT is the smallest among those four. However, TNT is the market leader in two major European markets, UK and Italy. The market in the United States is highly dominated by FedEx and UPS, which almost create a duopoly. The largest player in Europe is DHL, which has 32% of the German market. Furthermore, DHL has around 40% in the Asian market and over 50% in overall central Europe, the Middle East and Africa (Economis, 2015 April 10). Therefore, this report will examine these four companies to generate an overall picture of the delivery service industry. The following SWOT analyses will give a general overview of the strengths, weaknesses, opportunities and threats of the industry.


- Record Growth: Due to structural changes in the transport routes and order quantities in the freight industry, the package and express delivery service are growing much faster than the total freight market.
- Dynamic and sustainable growth of the industry is decreasingly susceptible to economic changes, due to the integration of their services in the everyday live. More and more everyday goods like food and cloth are ordered online and get delivered to the customers’ home.
- Increase of Efficiency: the transport of goods is getting faster and less costly due to highly efficient infrastructure.


- Capacity constraints especially in peak phases: demographic changes resulting in lack of both highly qualified personnel as well as in the field of low-skilled workers.
- High dependency on major customers: The proportion of sales from major B2B customers is up to 90% for most companies.


- Volume increase in parcels: In particular parcel delivery to private consumer is driven by the strong increase in online trading. The proportion of returns is steadily increasing.
- Speed is becoming an increasingly important factor in the transport sector. In addition to the online trading of non-food products, also food is becoming more and more important.
- Just-in-time production: Most industries are reducing their inventory and warehousing, which increases the volume of industrial goods within the delivery industry.


- Costs intensification through increasing urbanization: Rising costs for delivery in rural areas by decreasing population density.
- Intensifying competition: Only a few companies dominate the market. More and more pressure on smaller companies, which have large disadvantages regarding prices and bargaining power.
- Stable conditions are necessary due to the complexity of the industry. For example, night- flight ban, the quality of roads, access to city centres, etc.

Mergers and Acquisitions

A general definition of the term pair "Mergers and Acquisitions" or the abbreviation "M&A" does not exist. In some cases, each individual term "mergers" and "acquisitions" is used as a synonym and in overlap with related terms (Glaum et al., 2010). According to Reed (1999) "Mergers and Acquisitions" is used as the generic name of any company mergers in general, without a precise definition. Basically the term M&A stands for the combination of previously economically and legally independent companies, in which the autonomy by at least one of the involved parties is limited or even completely abandoned after the M&A process is finalized. According to the scientific literature, the main reason for M&A is growth. In this context, the term of growth is not limited to a company’s “size”, it also includes growth in the sense of new products, markets and/or technology. In general, a company can grow in two ways, either internally, for example by establishing new plants, employing new workers, developing new products etc. or it can grow externally. External growth usually involves mergers and/or acquisition of other companies, or parts of other companies (Pausenberger, 1989). External growth can therefore be divided into horizontal, vertical and conglomerate growth. Horizontal growth means, M&A activities are conducted within the same stage of production within the same industry. For example acquiring a competitor, which offers the same or similar service or product. Vertical growth on the other hand means acquiring a company within the same business, however at a different stage of production/service. For example, acquiring a supplier or customer of the company’s services. A conglomerate M&A describes the growth into a new business line, often used in the light of diversification of the current business concept (Reed et al., 1999).

This section will examine the M&A activities of the major players in the delivery industry and will highlight the strategic reasons for the individual mergers or acquisitions.

Table 1 M&A Activities - FedEx 2005-20151

Abbildung in dieser Leseprobe nicht enthalten.

Table 1 shows the M&A activities of FedEx over the last 5 years. It appears that the two main strategies of FedEx are vertical and horizontal growth in international and national markets. On national level, the focus is on vertical growth, as GENCO and Bongo are two software companies, which are leading in the field of e-commerce and supply chain management. It can be derived that the know-how of these tow companies in the more and more important field of information technologies (IT) for logistics was the main purpose for the acquisition. FedEx is now able to develop the required software within the company on a more customized level and has the potential of cost reduction opportunities. On international level, FedEx clearly follows an external, horizontal growth strategy. FedEx acquires companies within the same business to expand their international customer base and logistics infrastructure. A very recent and interesting acquisition is TNT. TNT is the second largest European delivery company and was a target of UPS in 2013, however the merger failed, which will be discussed later. The acquisition of TNT is planed to be completed within the first quarter of 2016.

Table 2 M&A Activities - UPS 2005-20152

Abbildung in dieser Leseprobe nicht enthalten.

The strategy of UPS is very similar to the strategy of FedEx. UPS also acquires competitors in foreign countries to use their infrastructure and customer base for further growth in their main field of delivery services. In addition, they also acquire software companies to get more control in the important field of IT. Another interesting fact is that UPS tries to diversify their core business into the field of pharmaceutical delivery in Europe by acquiring two companies within this sector in Eastern Europe. UPS officially states: “will further strengthen UPS's healthcare expertise and network in Europe, enabling compliant logistics services to customers for streamlining their product supply to the fast-growing healthcare markets of Central and Eastern Europe.” (UPS, 2015, March 26). Furthermore, UPS tried to acquire TNT in 2012, however got stopped by the European Union. They prevented the deal because of regulatory concerns. The main reason was the potential reduction of

competition, which would have resulted (European Union, 2015, March 27).

Table 3 M&A Activities - DHL 2005-20153

Abbildung in dieser Leseprobe nicht enthalten.

On the contrary, DHL puts more emphasis on vertical integration of companies. Over the last 10 years, DHL mainly expanded into the software business with a large focus on online marketing and advertising. They also bought an electric vehicle manufacture very recently. This indicates that DHL wants to be prepared for the upcoming trends of the use of more electric vehicles and the sustainable company. In addition, they are also growing horizontally by acquiring competitors outside their home market and strengthened their special delivery service for products, which require a cooled supply-chain.

Table 4 M&A Activities - TNT 2005-20154

Abbildung in dieser Leseprobe nicht enthalten.


1 Source: , author’s own illustration

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Delivery Services. An Industry Report about the Corporate Finance Practices
M&A, Dividend Policies and Ownership/Capital Structure
University of St Andrews  (School of Management)
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ISBN (eBook)
ISBN (Book)
File size
773 KB
Dividend and other distribution policies, 2. Mergers and acquisitions, Ownership Structure, Capital Structure, Corporate Finance
Quote paper
Arthur Ritter (Author), 2015, Delivery Services. An Industry Report about the Corporate Finance Practices, Munich, GRIN Verlag,


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