An Aramex buyout by Abu Dhabi’s Q Logistics is a surefire win for shareholders

Of all the activities conducted in the capital markets, the most exhilarating for market participants is the acquisition of a business with excellent growth prospects - and a management team that’s is driven by the underlying business growth.

Such companies are not easy to find; even less so in the age of lofted valuations in the West, and the IPO mania in the Gulf.

However, the potential acquisition of Aramex represents an opportunity for both companies’ shareholders to profit from the transaction in the medium term.

 Q Logistics has the ability to remove the short-term pressure that accompanies most listed companies, and allow the growth strategy of Aramex to align with long-term profitability. This is in itself interesting.

At a time when most companies are looking to list and therefore open themselves up to scrutiny, here is a transaction where management is moving the other way. Counterintuitively, this is healthy for the ecosystem of the capital markets, as secondary markets will increasingly signal attractively valued companies.

And as capital markets continue to deepen, there will be more such opportunities for companies to acquire businesses that are undervalued because of their lack of access to capital and/or management and industry pressures.

It is worthwhile to note that the proposed acquisition is in an industry that through design or accident is well adapted to an inflationary environment , as well as possessing an ability to accommodate large dollar volume increases, where the marginal return on capital is high.

The approach adopted by Q Logistics resembles that of Berkshire (acquiring the company with full cash. This signals that it does not believe that its own share price trades at full intrinsic value either, another bullish sign for investors that are looking to seek exposure in this sector and the market as a whole.

With cross synergies at play and no pressure on its own balance-sheet - the valuation of Aramex is at $1.2 billion - existing shareholders may yet still feel that they may be able to extract a higher value. Undoubtedly, when a company wishes to sell its entire business in a negotiated transaction, there is a signal that it believes that it can realize its full business value and maximize its return for its shareholders through such a route.

As Yogi Berra said: “Sometimes you can observe a lot by just watching…”.

Aramex share price has struggled (barring the  post takeover news) even as the rest of the market has surged. Its management may yet be of the opinion that the value being offered by Q Logistics is superior given the industry dynamics, which require an infusion of capital and some amount of shielding as it recalibrates its business.

For Q Logistics, the case is clear as Aramex will add to its list of outstanding businesses. It demonstrates increased confidence in its ability to achieve scale and become a conglomerate, both in the domestic and international markets. And signals to the market that it remains on the lookout for transactions of businesses, even those that are listed, in negotiated deals that add value to the bottom-line whilst taking the long-term approach of adding value through synergies.

In yet another signal of the rapidly growing and maturing capital markets, this is heartening news for investors. And add to the influx of first-time participants in the ecosystem as a clear line is drawn in the sand as to how value maximization is sought after.