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Australia's fleet market is ripe for consolidation

Will 2017 be the year of mergers and acquisitions on the Australian fleet market? Signs do point to a consolidation of the market, writes the Australian Financial Review. 
 
A sustained round of consolidation would not be a new phenomenon, the paper points out: the Australian fleet and salary-packaging industry underwent a lot of mergers and acquisitions from around the year 2000. One of the high-visibility deals back then was the sale of Fleet Australia, to SG Fleet, a recent market entrant from South Africa. SG Fleet has gone on to acquire a few more businesses since then.
 
Easier finance
After 2008, the financial crisis and its aftermath dampened the dynamic towards consolidation. But now, the return of market stability and easier access to finance have created the conditions for a number of larger players on the market again to consider acquiring some of their smaller competitors. 
 
So thinks Campbell Jones, CEO of inventory solutions at Cox Automotive Australia, who is says in the AFR: "We see no major new entrants into either the fleet leasing or the dealer marketplace and we only see the big getting bigger and growing their individual portfolios".
 
Good strategy
The paper also quotes Simon Johnson, principal of corporate finance at Pitcher Partners, who has been working with several clients to grow through acquisition: "Larger groups are looking for bolt-on acquisitions. Some of these are not growing as much as they have organically in the past. While capital is cheap to get, growth by acquisition is a good strategy".
 
The eternal quest to control cost, and the options provided by economies of scale are another engine of the accelerating acquisition trend, says Guy Steel, CFO at WEX Australia: "Consolidation will continue as organisations address earnings pressure through operational efficiency. We also see limited growth in vehicles under lease so the focus is on taking share through pricing and scale benefits".
 
Boutique companies
Consolidation might make business sense, but customers often feel it leaves them with lower levels of service and personal attention. That in turn creates market opportunities for certain types of fleet services. And indeed, "a number of bespoke and 'boutique' fleet and driver management organisations have begun to flourish in these conditions due to a combination of the nature of their services and their dedicated focus on the changing needs of the customer", Matthew Prestney, executive director at TR Fleet told the AFR.
 
The likely result of this niche-finding and -filling trend? More consolidation: "Traditional leasing industries will be incrreasingly interested in understanding the success of these more-nimble market entrants, which may ultimately result in a number of acquisitions".
 
Market specifics
Even while fleet management may not yet have achieved the same degree of penetration in Australia as it has in Europe (36% vs. 76% in the UK), the fleet and lease industry is catching up fast with more mature markets. The industry's major players in Australia are sgfleet, LeasePlan, GE Custom Fleet and Toyota Financial in the top tier; Fleet Partners, Orix and FleetPlus in the middle tier; and Maxxia, Summit Leasing and various companies specialising in novated leasing – a formula by which employees self-fund their company cars – at the 'boutique' end of the market.
 
Between 1 million and 1.2 million new vehicles are sold on the Australian market each year. The major brands are, in descending order: Toyota, Holden (a GM brand), Ford, Hyundai, Nissan and Mitsubishi. The fleet market amounts to around 500,000 vehicles each year, some of the most popular models are: Toyota Corolla, Ford Mondeo, Holden Commodore, Mitsubishi Outlander and Ford Ranger.
 
Image: Diliff, CC BY-SA 3.0 
15/02/2017  |  Frank Jacobs

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