Private equity goes postal

John Bakie
21 May 2010

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Once again, British politicians are considering selling off some, or all, of the countryтs state postal service, Royal Mail. Private equity bidders have been linked to past attempts to buy the company, and may yet swoop on the opportunity. Despite continuing uncertainty on Royal Mail, outside the UK, private equity has been active in the postal sector. John Bakie investigates

CVC Capital Partners has been actively investing in postal service providers across Europe. Most recently, the firm was reported to be considering a partial IPO of Belgian postal service, De Post - La Poste, after it acquired a significant stake from Post Danmark in January 2009.

Prior to acquiring the Belgian operator, CVC had been planning to merge Post Danmark with Swedish Posten AB, but pulled out of the deal as it would be left with a minority stake that was not part of its investment strategy. Instead, the investor took the opportunity to acquire a stake in De Post - La Poste.

While investors have been active in recent years, there remain questions over the sector's long-term potential. The rise of the Internet, it was thought, would sound the death-knell for post services across the developed world. With e-mail having largely replaced physical post for most forms of document transfer, it's easy to see why the sector could get into trouble.

However, the Internet brought with it a boom in online shopping and the delivery services needed to facilitate web businesses. While the common letter is unlikely to present any growth opportunities for postal companies, those that are able to increase their parcel and large package deliveries, to service the online shopping sector, could reap substantial profits. Private equity investors could provide these firms with the capital and expertise needed to rebalance their businesses, and might yet be able to merge activities across countries, particularly on the continent.

Plans for the UK's Royal Mail privatisation, unveiled yesterday by the country's new coalition government, have yet to be detailed. But, private equity players showed interest when the previous administration proposed selling Royal Mail in 2009, and the industry might once again look at this opportunity. While merger possibilities are likely to be limited by the UK's geographic constraints, it seems the Royal Mail has had some success in adapting to changing market conditions. Full-year operating profit was up 26% in 2009/10, after a drive by Royal Mail bosses to increase efficiency and modernise the service. Unions could still present a problem, but the new government may be more able to force a part-privatisation than its Labour predecessor, which was tightly linked to the trade union movement.

Market players will, no doubt, be keeping a close eye on Royal Mail and other developments in the sector. This could be the perfect time for private equity to go postal.