Thursday 29th Sep 2016 - Logistics Manager

Connect diversifies with Tuffnells acquisition

Connect Group, which owns Smiths News, is to acquire Tuffnells, the Sheffield-based parcels carrier, for £128.7m.

Tuffnells, the big green parcel machine, specialises in mixed freight and parcels – particularly “uglies” – items of irregular weight and dimensions.

The deal give Connect distribution network with potential to enhance existing operations, such as Pass my Parcel – the parcel collection service it launched in partnership with Amazon last month. It also expects to synergies worth £2m a year by year three of the deal.

Mark Cashmore

Mark Cashmore, group chief executive of Connect said: “The addition of Tuffnells will see us broaden our reach into an area of specialist distribution which complements our core skills and competences of time sensitive distribution with high levels of service and efficiency.”

Tuffnells operates through a network of 34 depots and operates a largely depot-to-depot operational model, providing more than ten million deliveries a year to more than 4,200 customers focusing on SMEs. Many of the items it handles are to large or awkward for automated networks. Sales last year were £127.8m while EBITDA was £15.2m.

Connect reckons that Tuffnells core addressable market is worth £740m, and believe that this market is expected to grow at three to four per cent. per annum.
 
The acquisition, on a debt-free basis, is for an initial consideration of £113.4 million. There is deferred consideration of up to £15.3 million. Cashmore said: “The transaction is expected to be significantly earnings enhancing for our shareholders and accelerates our clearly articulated diversification strategy. The Group remains focused on growing profits and generating free cash flow to support our progressive dividend policy.”

Following completion of the deal, Tuffnells will operate as a separate division within Connect Group. Lloyd Dunn, managing director of Tuffnells said: “By combining our businesses we will immediately benefit from opportunities to share skills and create synergies. We are already planning for strong standalone growth and expect there will be significant further benefits as we combine with Connect Group to deliver for the next phase of our development.”
 
Connect Group has its roots in the WH Smith newspaper and magazine wholesaling business. It was demerged from WH Smith in  2006 and has been expanding its range of services since then.  IN the year to 31st August it had sales of £1.8bn and underlying pre-tax profit of £50m.

The group name was changed to Connect Group plc in April this year, although the newspaper wholesale business has retailed the Smiths News name.
 
The group’s strategic ambition is to generate 50 per cent of profits from activities outside newspaper and magazine wholesaling over the medium term, and the proposed Acquisition of Tuffnells represents a significant step towards achieving this ambition.

The deal will be funded partly through a £55m rights issue, along with extended debt facilities of £50m.

The deal is another move by the major players in print distribution to expand and diversify their operations. Last week News UK, publisher of The Times and The Sun, launched Newssolutions, a print and logistics service for other newspaper and magazine publishers.