A.P. Moller- Maersk is spreading inland logistics with a view to seeking growth. It makes a “big bet on Asia” by buying LF Logistics, a Hong Kong-based warehouse giant.
Maersk agrees $ 3.6 billion enterprise value deal to buy an Asian warehouse specialist. The acquisition helps Maersk expand its push into land-based logistics, which has become more profitable than its traditional sea-container business.
The largest container shipping line in the world is acquiring LF Logistics in an all-cash deal, it reported on 22 Dec. The takeover is the second only to its USD 4 billion acquisition of Hamburg Sued in 2017.
A.P. Moller-Maersk, which carries about a fifth of the world’s containers by the ocean, has built a new bold strategy to expand in land-based logistics services, which have more potential for its growth, and profit margins are also higher. Before the current takeover, the Denmark-based company announced plans to buy an air freight company-Senator International because it desires a presence in all parts of the transport chain.
“We are on a journey away from being a container line sailing with containers from Hong Kong to Rotterdam to being a logistics company delivering solutions which enables our clients to get all the way from where goods are produced to where consumers are,” said Soren Skou- Chief Executive Officer in an interview.
The acquisition performs as “a big bet on Asia” Skou explained. “It means that we can also help our clients service the Asian market, which is where growth will be in the future.”
With the decision, Maersk gets 10,000 staff extra and more than 200 warehouses in 14 countries. The company will raise annual revenue in its logistics and services business by about USD 1 billion with the takeover.
The sellers of the deal are Li & Fung Ltd., which owns 78.3% of LF, and Temasek Holdings Pte., which obtains the rest. The buyer- A.P.Moller- Maersk proclaimed that it is paying a multiple of 14.4, based on enterprise value to earnings before interest, tax, depreciation, and amortization. The deal includes an earn-out with a total value of as much as USD160 million related to future financial performance.
The takeover happens when Maersk has reached record profits from a surge in sea freight rates. The cost of shipping container boxes has skyrocketed as bottlenecks in the global supply chain have, in effect, wiped out about 15% of the world’s shipping capacity. The biggest giant is set to book 2021 net income of USD17 billion or six times the result in 2020, according to analyst estimates.
However, as part of the agreement to acquire the Asian warehouse giant, LF’s freight-forwarding unit will still remain with the owners. Maersk has responded that it will focus acquisitions on companies with logistics assets or specialized technology instead of pursuing freight forwarders
The transaction is expected to complete in 2022, pending regulatory approvals.
Another giant of the container shipping market, MSC Group offered to buy the African assets of the logistics unit of Bollore Group for USD 6.4 billion in enterprise value on 20 DEC. A.P. Moller- Maersk had reportedly been looking at the deal, along with other shipping groups.
“We are still looking to buy businesses in the areas where we feel like we are missing some things in our portfolio, but the most relevant thing for us is to continue organic growth,” said Skou. “We are not interested in buying giant companies just to buy something big.”
