News that private equity player, Pacific Equity Partners (PEP) has splashed out more than $AUD1 billion to purchase Freight Management Holdings (FMH), from Singapore Post, has led some to predict that the deal may be part of a bigger play, with the potential acquisition of other major freight and logistics operations, both here and potentially across the ditch in New Zealand.
FMH is the company that holds the various freight and logistics companies that have been owned and controlled by SingPost in Australia for the last few years
News that SingPost has clinched the deal to sell its FMH assets to PEP, means it has secured a grab bag of significant players in the freight and logistics market here in Australia, including EFM Logistics, FLIP, CouriersPlease, Border Express, BagTrans, Niche Logistics, GKR Transport, Formby Logistics and Spectrum Transport Systems.
FMH Group is comprised of three operating divisions – fourth-party logistics and warehousing, technology, and transport.
PEP, is an Australian based private markets fund manager and currently manages assets worth A$12 billion. Since 1998 it has reportedly made more than 200 acquisitions and engaged in almost A$50 billion in transactions.
PEP’s highly acquisitive stance in recent times has come since it raised close to $2bn-plus in funds from the market for the purpose.
The PEP- FMH deal mean it will secure a business that generates around $AUD120 million in annual earnings before tax, depreciation and amortisation.
The big drawcard for PEP in buying FMH was believed to be EFM Logistics, which has been described as a capital-light business within the operation, offering supply chain management services, but which doesn’t have the capital spending requirements that other parts of the business have.
While they have been picked up as part of the overall deal, both the Border Express business and the CouriersPlease operation, are believed to have been less of an attraction for PEP and maybe off loaded.
PEP managing director, David Brown said the company was thrilled to make FMH Group part of its portfolio.
“FMH Group has a stellar track record of growth, a passionate team and a clear and compelling trajectory,” Brown said.
“We look forward to supporting them to build on their success and facilitate further opportunities,” he added
SingPost said it would use the proceeds from the sale to pay down its borrowings, particularly its Australian debt that amounts to A$362.1 million, or about half of the total Australian debt of the SingPost Group at 30 September 2024.
SingPost Group CEO Vincent Phang said that once the transaction is complete, the board and management will review and reset the Group’s strategic plan, with a continued focus on shareholder value.
“The board believes this divestment is the best option for shareholders by crystallising the unrealised value of the business and bringing forward unlocking value for the shareholders,” said SingPost chair, Simon Israel.
PEP is also reportedly currently carrying out due diligence on purchasing listed fleet management company, SG Fleet for around $1.2bn, along with aged care provider Opal
Another potential acquisition option for PEP, after a potential purchase of TGE, could be Kiwi operation Mondiale VGL, which is rumoured to be keen on either an initial public offering or a sale for around $NZ1bn-plus.
The deal will see PEP acquire the business at a value of $AUD1.02 billion, including $AUD 775.9 million in cash with the deal expected to generate an expected gain for SIngPost of approximately $AUD396.5 million, subject to various provisions and adjustments at the time of sales completion.
SingPost was advised by the Bank of America on the auction of its FHM assets, which saw PEP triumph after fighting off some fierce competition from major global capital operations, including Blackstone and BGH in the final round. It is believed PEP was given exclusive due diligence, even though Blackstone was earlier named as the front runner in negotiations.
It has been reported that New Zealand-listed transport and logistic companies, Mainfreight and TGE both took a look at FMH, but that the contest was then narrowed to just the three buyout funds.
The successful PEP deal means SingPost has done a lot better than its counterpart Japan Post did after it splurged $AUD 6.5 billion for Toll Group in 2015. Six years later in 2021, Japan Post divested itself of 40 per cent of the Toll business for just $AUD15.5million as a distressed asset, which the buyer recapitalised with $500m of debt . It represented not just a financial disaster, but a massive loss of face for the Japanese Government owned corporation.
The Japan Post purchase of Toll was spruiked at the time as a ‘great Australian company’ giving a state-owned Japanese business the growth prospects it needed for an initial public offering, which was central to the then Abe government’s economic reform program.
It was one of the most important corporate transactions in the transport industry of the decade and while the Japanese trusted Australian business, because of what they saw as a sophisticated capital market, with professional regulators and the reliable rule of law, it was anything but, with the reality that Toll was a company with a labyrinth of internal fiefdoms, archaic financial and computer systems and the spectre of organised crime infiltration.
Interestingly one of the potential targets for PEP in further Australian transport acquisitions, could be Team Global Logistics, the company that was the subject of that 40 per cent sale of Toll by Japan Post three years ago.
Rival private equity operation, Allegro Funds was the purchaser of that Toll operation from Japan Post, turning it into Team Global before installing former Australia Post boss, Christine Holgate as the CEO. While the company has performed reasonably well under its new ownership and management, according to its last accounts, it is losing money, with weak market conditions as well as high staffing and fuel costs weighing on its bottom line.
Japan Post reportedly spent hundreds of millions of dollars in a bid to turn around Toll by integrating its sprawling and diverse computer and financial systems but judging by the sale price the Japanese postal giant off loaded it for, the investments had little effect, which proived that Japan Post’s performance as an acquirer and proprietor was one of the great failures in Australian business leadership in recent times.
Despite this it is believed a TGE sale could net Allegro a pretty profit if PEP decides to scoop it up.
It has been reported that investment bank UBS has undertaken consultation work for the Christine Holgate-run Team Global Express on a sale in the past, and it is apparently no secret that Allegro Funds would be a seller at the right price.
