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PE, M&A activities in logistics, transport sectors to get further momentum

Merger and acquisition (M&A ) and Private equity (PE) activities in the transport and logistics sector in the country during the first five months of 2011 have seen a significant increase as compared to that for the same months last year. Last month alone witnessed five deals, including Warburg Pincus putting $100million in Continental Warehousing Corporation , Fidelity Growth Partners investing $13.5 million in Transpole Logistics and Aqua Logistics taking over Nikkos Logistics. Given the hectic activities, sources familiar with the development are expecting to see at least one deal every month on transport infrastructure and logistics sectors of the country .

On the PE side, scores of India-focused funds managing over $20 billion are now eager to deploy capital given the recent slowdown. On the M&A side, the country presents itself as an ideal ground where industry consolidation has only just begun . PE firms that have successfully exited last year after amassing a cool $5.4 billion are also giving investors the necessary confidence about the accelerating growth of the economy , fast approaching $2 trillion in size, and its ability to give healthy returns.

There have been over 160 deals in the infrastructure sector in the last five years alone making it one of the most active M&A sectors in India today.

If there is any particular segment that is enjoying good attention of fund managers as well as strategic buyers, it is the freight forwarding industry.

According to Wikipedia, a freight forwarder, forwarder, or forwarding agent is a person or company that organises shipments for individuals or other companies and may also act as a carrier. A forwarder is often not active as a carrier and acts only as an agent, in other words as a third-party (non-assetbased ) logistics provider that dispatches shipments via assetbased carriers and that books or otherwise arranges space for these shipments.
According to Chetan Dikshit, director – Rothschild India, freight forwarding continues to receive a premium as compared to 3PL businesses in the global strategic M&A landscape .

“Unlike the west and the other d eve l o p e d world, India's freight market is dominated by forwarders ,” said G a u t a m i S e k s a r i a , founder and p a r t n e r, Supply Chain Leadership Council , an org a n i z at i o n seeking to create an active community of industry stakeholders in the wider transport and logistics sector. “They control customer relationships and play the crucial role of consolidating cargo volumes for carriers .”

With few entry barriers, the freight forwarding sector has traditionally seen an influx of a number of unorganized players . However, freight forwarders are gaining scale, some more than others, and are wanting to offer other value added services, often asset heavy like CFS/ICD, warehousing, etc. This, together with their need for working capital and create self-owned set-ups abroad, requires them to raise funds creating opportunities for a PE play. It is no wonder that in India the maximum number of M&A activities are centred around freight forwarding companies as overseas logistics companies seek to have greater control of their India corridor and vice versa.
Source: Economic Times

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