Royal Mail acquires Canadian parcel business Dicom to widen its footprint abroad

Royal Mail acquires Canadian parcel business Dicom to widen its footprint abroad

Royal Mail has acquired a Canadian parcel delivery business as the former state-owned business continues its plan to expand its footprint into new markets. It has bought business-to-business parcel company Dicom Canada for C$360m (£213m) on a debt and cash-free basis from US private-equity group Wind Point Partners. Dicom operates across all of Canada but is focused on the eastern provinces of Ontario and Quebec, which make up 57pc of the country’s economy.

The transaction is being made through Royal Mail’s Global Logistics Systems (GLS) subsidiary and will be funded under existing borrowing arrangements. Dicom has 28 depots and last year generated total revenues of C$233m. RMG said it expects the acquisition to boost earnings in the current financial year. Rico Back, who took the helm at Royal Mail in June, said buying Dicom followed the company’s growth strategy through “targeted and focused acquisitions to capture higher growth segments outside Europe”. He added that Dicom had a similar business model to GLS, which is described as “a growth engine” for Royal Mail.

Struggle to Stay Afloat

The FTSE 100 Company is suffering from a structural decline in the number of letters being sent, with changes such as online billing a major contributor to this. The company also faces the burden of “universal postal system”, which requires it to deliver to every UK address six days a week at a standard price. Competitors do not face such a burden, allowing them to pick and choose contracts that are less arduous.

The change in the structure of the postal system means that there is a greater focus on parcel delivery than letters, driving the strategy for Royal Mail to look abroad. Last year GLS was responsible for a third of the company’s £581m of adjusted operating profits after transformation costs, as the business undergoes a radical shake-up that includes improving its distribution network, upgrading IT, slimming down its property portfolio and shedding staff in the face of intense competition.

The acquisition – which does not require regulatory approval to go ahead – received a gloomy reception from investors, with Royal Mail shares edging up 0.7pc to 451.2p on the news.