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Brambles Signals Intent to Buy IFCO Systems
Brambles, Ltd., parent company of CHEP, announced its intention to buy IFCO Systems, one of the largest pallet recyclers in the United States.
By Chaille Brindley
Date Posted: 12/1/2010
Announcing one of the biggest acquisitions to ever hit the pallet and reusable packaging markets, Brambles Ltd, the parent company of CHEP, has revealed its intention to buy IFCO Systems, a global leader in Reusable Plastic Containers (RPCs) and a major player in the U.S. pallet services/recycling market.
Brambles indicated that IFCO’s RPC business was a major reason for the acquisition since it has strong operations in 23 countries. CHEP sold its U.S. RPC business to IFCO a few years ago even though both compete in the RPC business in foreign markets.
Earlier this year, Brambles indicated that it was looking to grow existing business, expand into new markets, and conduct targeted acquisitions to ensure continued success as some mainstay channels and markets were hampered by poor economic conditions and other challenges.
It appears that this blockbuster acquisition will create a new portfolio of companies with sales revenue of approximately US$5 billion, of which more than US$4 billion would come from pooling and pallet services. The Brambles group would have more than 16,000 employees, working in 49 countries across six continents under the CHEP, IFCO, Recall, LeanLogistics and Unitpool brands.
Brambles CEO Tom Gorman said, “The purchase of IFCO represents a unique opportunity for Brambles to enhance its position as the world’s leading pooling solutions provider and acquire operations with a strong growth profile. IFCO is a natural fit with Brambles’ existing RPC and pallet businesses and will allow us to continue to deliver on our strategy of diversifying our revenue base by product platform, geography and customer type.”
Brambles indicated it will pay about US$1.26 billion to acquire IFCO subject to regulatory approval. It could take up to nine months or longer for the deal to be approved by various governments, including U.S. authorities. During the interim period, all divisions will continue to be run as separate entities. It is unclear how the various organizations will be run or integrated if the merger goes through the approval process.
Given the size and influence of both companies on the U.S. pallet market, the federal government may give this deal a close inspection. But in the grand scheme of mergers, this deal is still fairly small compared to some other mergers that have sailed through in recent years.
The major reason given by Brambles for the deal is product and geographic expansion. However, it signals a major ideological move for the logistics and pooling conglomerate. Its core business is pooling, specifically the CHEP rental model. And it is trying to acquire the largest player in the recycled pallet market – a major ideological competitor to its rental approach.
Beyond its RPC business, where it is the market leader in Europe and the only major operator in the U.S., IFCO has a very large network of pallet repair facilities in the U.S. market. IFCO also operates a number of dock sweep programs for major retailers, which could enhance the ability of CHEP to retrieve its assets and lower the acquisition costs of stray pallets and containers.
IFCO reports fairly strong margins of 20% on its RPC business. The U.S. pallet business is far less lucrative than the RPC sector with margins around 4.8%. However, the pallet industry is also less capital intensive and provides strong synergies for its U.S. pooling operations.
One interesting wrinkle will be how some of the retailers, especially Walmart, respond to the news. IFCO operates loads of dock sweeps around the country for major retailers. In fact, Walmart appointed IFCO as one of its limited total pallet management operators in 2008 after replacing CHEP. It appeared that Walmart did this to reduce its dependence and reliance on CHEP and to ensure some degree of competition in the market.
What will this mean for pallet recyclers around the country? The Recycle Record, the monthly market report published by Industrial Reporting Inc. will have indepth coverage in a future issue. To subscribe and make sure to get our analysis on this blockbuster acquisition, call Jeff McBee at 800-805-0263 or visit www.recyclerecord.com.