Johannesburg - Industrial holdings group Imperial is set to significantly bulk up its logistics division. So said analysts who Fin24.com spoke to after the company announced it's on an acquisition hunt and is willing to spend as much as a fifth of its market capitalisation. "The message is that [Imperial's] slimming down period is over and they are once again looking at bulking up in the core areas," said Paul Theron from Vestact. Kurt Benn, senior portfolio manager at Cadiz Asset Management, said the obvious area where Imperial could beef-up its business is logistics.

Imperial Logistics is a major player in Southern Africa's supply chain management sector. The division also has a presence in Europe. The key operational divisions are transport, warehousing, specialised freight and the movement of consumer goods. Benn said Imperial could look at acquisitions to deepen its footprint in Germany, or to leapfrog into the SADC region.

Imperial indicated that logistics are a "key growth priority" at the announcement of the company's results for the six months to end-December 2009 on Wednesday. Group CEO Hubert Brody said the likely maximum size of the acquisition will be 20% of Imperial's market share, which translates into around R4bn. He added that attractive targets would have to be earnings enhacing and not be a drain on the group's capital resources. "We must be absolutely sure of the earnings enhancing properties and a safety margin," said Brody, who addressed shareholders at the results announcement on Wednesday.

Turnover without the costs
Investec Securities' Peter Armitage said that Imperial is likely to buy a business that is not typically asset heavy. For example, this could involve the purchase of a company that operates a fleet of trucks as opposed to buying the trucks themselves.

"They will want to bring in the turnover, without bringing in the cost," said Armitage. The company has made several smaller investments over the past year, including a 75% stake in automotive retail chain Midas and a R150m convertible bond injection into automotive company Renault South Africa. Brody said that the strength of Imperial's balance sheet allows for more acquisitive growth. Imperial had cash and cash equilivants worth R2.7bn at end-December 2009. The company also has access to R9.5bn worth of unused funding facilities. The group also showed that prudent cash and balance sheet management had led a 37% decline in its net cost of borrowing to R319m.

Tourism and car rental
Imperial's other key operational areas, which could be bulked up are the distribution and retail of vehicles as well as tourism and car rental. Analysts Fin24.com spoke to, said that more investment in the car retail space is unlikely.

Another possibility is for Imperial to bulk up its tourism/car rental arm. The biggest components of this division are car rental agencies Europcar and Tempest as well as the Springbok Atlas coach charter. Theron said the possibility of buying a medium sized tour operator business was relatively small, given the fact that JSE-listed competitor Bidvest is heavily involved in that market already. Imperial has also already made three purchases in the tourism sector in the 2009 financial year. These are car rental companies AA Autobay, Gage Car Hire Brokers and U-Drive.