Introduction
This paper will explore FedEx Corporation and its acquisition journey. The specific emphasis will be on the acquisition of ANC Holdings Limited in the United Kingdom. FedEx is a courier company with an international presence that is located in America and headquartered in Memphis, Tennessee. This paper will focus on the mergers and acquisition that fostered the process of internationalization for FedEx. The firm provides a portfolio of logistics and transportation, business and e-commerce services globally. Cartwright and Cooper (2012, p.1) defined acquisition as a corporate initiative where one firm buys a majority of the ownership stake of another company so as to get the control over it.
The original name of FedEx was Federal Express founded by Fredrick Smith in 1971. The company has had a series of mergers and acquisitions to emerge as a leading firm in courier service in the world.
As a leader in the courier and logistics services, FedEx has an extensive international market. The firm strives to enter into any stable nation and operate there. The company uses a strategy that deals with global expansion through homegrown acquisitions within targeted nations and rebranding them and getting them into the fold of FedEx entirely within a short period (FedEx, 2003). The mergers and acquisition tactic applied by FedEx is capable of increasing the firm’s revenue and profits. The corporation acquires local firms and continues to employ the local workforce to assure brand loyalty.
The acquisition of ANC Holdings Limited in the United Kingdom
The acquisition of ANC Holding by FedEx falls under horizontal integration. Barros and Domínguez (2013, p.980) in their book defined horizontal integration as a strategy where a company acquires another company in the same industry. In October 2006, FedEx Corporation announced that it acquired ANC Holdings Limited, a company in the United Kingdom. ANC was a domestic express firm, and the purchase price amounted to GBP 120 million. According to Bhardwaj and Momaya (2006, p.38), the transaction enabled FedEx to serve the whole of the UK market directly. It propelled the providence of a larger variety of shipping choices and advanced service under the trusted brand of FedEx. The acquisition further accommodated the shipping and transportation to all Commonwealth nations amounting to 54 countries (FedEx, 2016). The transaction opened up the opportunities in Western Europe. With this one purchase, FedEx acquired trade routes in what was commonly known to be a British Empire.
ANC had a broad variety of logistics and distribution services. It also had a reputable pick-up and delivery linkage running the whole of the United Kingdom. ANC was formed in 1981, and by the year of acquisition, its revenue exceeded 145 million Pounds (FedEx, 2006). The firm’s reputation range from its reliable delivery system, superior customer service, and employee commitment. The business had 4,500 individuals in its network, 2,200 fleets of vehicles that operated over 80 destinations (FedEx, 2006). The increase in demand in bundled transportation facilitated the acquisition by FedEx. The firm needed to take advantage of the global trend in a trade that needed a faster logistics and supply chain through the growth of e-commerce. All the management and staff of ANC retained their position after the acquisition. FedEx’s strategy of acquiring companies throughout the globe assures its survival in the industry. The firm invested in companies that complemented each other. When the EURO falls, the dollar rises and this supplement the income of the enterprise, and therefore, remain stable in its operations.
Motivation for acquisition of ANC
The activities between FedEx and ANC were majorly complementary. ANC’s business strategy focused on the delivery of services to the domestic market and a small segment operating internationally, while FedEx has a small section of local service. The two firms were not competitors. FedEx needed to acquire the business since it specialized in the domestic market of United Kingdom (FedEx, 2016). The acquisition also increased the market share held by FedEx and enabled the firm to enter a market that was predominantly a British Empire. The acquisition would lead to FedEx having access to the dynamic market in the UK. Another factor that motivated the acquisition of ANC is to offset the home country performance of the company (FedEx, 2006). ANC operated in a state that uses the EURO whereas the home country of FedEx uses the dollar. When the value of one currency decreases, an increase in the other currency offsets the negative performance of the other. The political and environment factor in the United Kingdom was not favorable for FedEx to enter into that market without acquiring a stable home company.
FedEx bought ANC for the reason of diversification to other country and enlarge their market share. Chen et al. (2014, p.898) defined diversification as a strategy used by companies to expand their businesses and spread risk across several products and to increase profitability. By entering into foreign markets, the firm increased their foreign exchange exposure and therefore, increased their revenue and growth (Farhoomand et al., 2003, p.86). By acquiring ANC, FedEx wanted to avoid the hiccups associated with starting a company from scratch in a foreign country. A firm built from zero often takes more than five years for it to catch momentum and increase its market share. To avoid such problems, FedEx was motivated to acquire ANC. The acquisition gave the firm an advantage of exploiting the already existing capabilities offered by ANC. It enabled FedEx to expand its business quickly. Another motivation for the purchase was to avoid an over-supply in the industry. By acquiring ANC, the firm gained control in the UK logistics industry without oversupplying the market.
Entry Mode to the United Kingdom
The entry mode to a foreign country needs a strategic move that will ensure the firm establishes itself abroad. The two methods for entry are the push and pull factors. The difference between the two modes is that the push factors are reactive in nature whereas the pull factors are proactive in nature. According to Steensma and van Milligen, (2003, p.116) noted that push factors influence firms to move to other countries to trade. It refers to the factors that force a company to go from the domestic market to another nation. They include factors like a product reaching the end of a life cycle in one country, a huge supply of the product as compared to the local demand, political instability, and increased competition (Anderson et al., 2015). Therefore, the push factors are the reasons a firm is forced to move to other nations to continue being in business.
On the other hand, pull factors attract a foreign firm to invest in a local market (Brouwer 2004, p.337). They include factors like the advantage of huge profits, available opportunities for growth, and favorable political conditions in the foreign country that facilitate doing business. Companies go to international markets because they desire to be on the global market. FedEx entered the United Kingdom market through the pull factors. They sought the opportunity to grow in the UK market to facilitate diversification. FedEx foresaw that the foreign market would generate higher sales and profits avenues that would not be matched in the country of origin. The UK market attracted FedEx because it was a British Empire that had no foreign company operating in it. The attraction to the market would only have been possible if the company entered into a merger or acquisition strategy. The firm chose to acquire the ANC which was a market leader in the UK. The acquisition enabled FedEx to increase their revenue, they also enjoyed a larger economy of scale and exploited their competitive advantage.
Process of implementation
The process of acquisition is painful for many firms across the world with more than 50% failure rates after that (Buono and Bowditch, 2003, p.106). Businesses go through three processes during mergers and acquisition: Pre-combination, combination, and solidification. The implementation process is similar to the combination and solidification processes. The acquisition of ANC Holdings Limited has been a success like many other acquisitions. The company subsumed ANC under the banner of FedEx with ease and used their employees to open new routes for the expansion and growth of the business (Thompson and Martin, 2010, p.326). The process uses the military strategy with keen attention to winning the minds and hearts of the workforce in ANC.
Once FedEx acquired ANC in the UK, they investigated the factors that made the acquired company a success and left it as they were. Their integration had a lighter touch by striking a balance between changing the firm bought into FedEx, with equal force in reliability and efficiency, and holding the factors that made ANC worth purchasing initially. During the implementation, FedEx also investigated the reasons that hindered the firm from moving to the next phase and consolidated resources to ensure the company propels ahead.
Most newly merged companies are often bogged down by their failure in decision making and eventually lead to failure (Schuler and Jackson, 2001, p.240). FedEx used a structured chain of command responsible for the transition of the new corporation to check on all steps and avoid problems in the initial years of acquisition. The team comprised of the strategic management committee that use to meet each Friday to discuss the strategy and the execution of the said plan. The first step after the acquisition was breaking down the activities at ANC into work streams. Each department had two leaders who worked as a sub-team. One of the leaders came from the staff of ANC while the other one was a counterpart of FedEx. FedEx adopted the aggressive approach of training. They devoted much time putting across the goals of the firm and ensuring that all the staff understood them. Every week the team had a meeting where each team leader showed the decision made during the week and their plans for the following week.
Limitation
The major flaw in the acquisition of ANC Holdings Limited is the fact that the firm holds less than five percent of the supply to the document delivery service, express parcel, and international standards in the United Kingdom. The acquired firm mainly focuses on the local market whereas FedEx eyes the global market. The acquisition did not lessen the competition faced by ANC in the UK and therefore, failed to raise the expectations of the shareholders. The same sentiments were held by OFT who felt that the merger between ANC and FedEx was not expected to lessen competition substantially in the United Kingdom market.
Conclusion
Mergers and acquisition is an expansion strategy that companies adopt to reduce competition and to drive their competitors out of the market. A firm acquires the whole or some percentage of the controlling stakes from another company. FedEx Corporation is the biggest express logistics company in the world. The company provides a reliable and fast delivery of parcels to over 220 nations. FedEx announced in 2006, the acquisition of ANC Holdings, in the United Kingdom. The firm was acquired for 120 million pounds. The transaction enabled FedEx to operate in the domestic market of the United Kingdom that was known as a British Empire.
The acquisition was mainly motivated by the need to expand their business to the UK market that was hard to penetrate. The company also needed to increase its revenue. The complementary effect of ANC encouraged FedEx to invest in it. The entry mode to the UK market was affected by the pull factors. The factors attracted FedEx to move to the United Kingdom. A horizontal integration took place since both the firms are in the same industry of offering logistics and distribution services. FedEx retained the workforce in the UK and slowly transformed their culture to adopt their values and beliefs. The Acquisition of ANC was the best move that the firm made since they were able to offer their services to all the 54 countries of the Commonwealth.