Private mail firms changing hands

Its services are used by lawyers and estate agents among others

Private equity firm Candover is set to buy two private mail operators as it seeks to exploit growth in the postal industry after its deregulation.

It has tabled an offer to buy DX Services, which delivers next-day mail to 17,000 UK businesses, for £348.7m.

Should shareholders approve the deal, it then plans to buy Secure Mail Services (SMS), which delivers valuable documents to residential addresses.

The combined business would handle more than 270 million items of mail a year.

End of monopoly

Candover would be buying DX Services for the second time having acquired logistics firm Hays - of which DX Services was a subsidiary - and later listing it on the stock market.

It plans to buy SMS from Baring Asset Management, although the value of the deal has not been disclosed.

Consolidation in the postal market has been expected as medium-sized operators try to take advantage of the end of Royal Mail's 350-year monopoly on postal deliveries.

The £4.5bn postal market has been open to full competition since the start of the year, although Royal Mail still handles more than 95% of deliveries.

Royal Mail still dominates the market

DX Services has had a licence to deliver mail direct to the door of business premises since 2003.

Candover expects DX Services to boost its share of the next day mail delivery sector by focusing on small businesses.

It currently has about a 20% share of this £500m market.

SMS currently delivers 25 million valuable items a year, including passports, credit cards and cheque books.

SMS was criticised by Home Secretary John Reid in May after it emerged that 1,500 passports had been lost since 2004 when the firm took over the delivery contract from Royal Mail.

SMS said losses had fallen by 80% since it took over the contract, while they represented a small fraction of 13 million passports sent a year.

'Competitive force'

The merger of DX Services and Secure Mail Services would create a business with sales of £175m and 1,840 staff.

John Maxwell, chairman of DX Services, said the deals would create a "stronger business" and improve overall competition in the market.

Candover said the deals would create a "competitive force" in the UK mail delivery market.

DX Services has struggled since it demerged from Hays in 2004.

Its chief executive resigned last September amid concerns about its performance and its shares slumped in January after a profit warning.