Private equity firm India Equity Partners (IEP) has struck a deal to acquire domestic road operations of Dutch freight & logistics giant TNT Express in India for an undisclosed sum, in one of the rare control deals in the Indian private equity market.
The domestic road transport business will become part of a logistics subsidiary of IEP, according to a company statement.
Senior management and most employees (approximately 1,000) of TNT Express’ domestic road business will move to IEP. Although TNT Express is not the biggest player in the road transport logistics space in India, given the human resource base, this deal will be one of the biggest private equity transactions in the Indian logistics business.
TNT Express will continue to offer inbound and outbound India services, via its globally interconnected networks. It will also continue to provide customer-specific special services, especially for the healthcare and service logistics segments.
On-the-ground facilities, IT and systems & processes will be supported by TNT Express during the transition process.
The sale takes effect on Dec 30 this year when IEP’s logistics subsidiary will become TNT Express’ preferred partner for domestic road delivery in India.
The decision to sell a part of the Indian operations comes after an extensive review of the prospects for the domestic road business in India within TNT Express’ business portfolio, the firm has said on Monday.
IEP’s Focus On Mid-stage Control Deals
This comes as the third control deal of this year for IEP, which invests through a $350 million fund. It has been actively scouting for investment opportunities in the fast-growing food and retail space in India, including buyouts.
Earlier this year, IEP acquired majority stake in the restaurant chain Sagar Ratna that serves South Indian cuisine, primarily across Delhi-NCR. It also acquired majority stake in Innovative Foods Ltd, a packaged foods company and a strong player in the frozen foods segment, operating under its brand Sumeru.
With the TNT Express transaction, all three deals struck by IEP in 2011 happen to be control deals. This shows how mid-stage control deals happens to be a key focus area for the PE firm.
Incidentally, IEP also counts another portfolio firm in the ‘control/platform’ category. It is IKYA, a human resources and facilities management company that offers senior and mid-management recruitment services, temporary staffing solutions, training and facilities management services.
The latest transaction comes just about a year after it struck a deal in the logistics space. Last December, IEP picked a significant minority stake in Gwalior-based Swastik Roadlines Pvt Ltd, a food cargo supply chain service provider.
Deal-making In Indian Logistics Space
The latest buyout by IEP comes months after Warburg Pincus struck the biggest PE deal in the Indian logistics space with $100 million investment in Chennai-based logistics firm Continental Warehousing Corporation (Nhava Seva) Ltd, a subsidiary of the NDR Group. Another large PE deal in logistics business in India include Blackstone’s investment in Allcargo Logistics.
TNT Express, which demerged from the Dutch mail unit PostNL earlier this year, has been facing shareholder ire with crumbling corporate valuation and pressure on the bottom line, with large shareholders asking for change in top management. Institutional investors have raised questions over governance issues surrounding the demerger and losing operational hold in key markets.
Some shareholders see its strategic push into emerging markets as risky as Asian and Latin American businesses represent a little less than one-third of the total revenues but have been a drag on profitability.
The firm has been facing margin pressure in emerging markets and expects its operations in Brazil to turn around in the second half of 2012 and the Chinese operations to start making money in China.
TNT India clocked revenues of around Rs 453 crore in the year ended March 31, 2011, with net loss of Rs 112.25 crore, as per VCCedge, the financial research platform of VCCircle. But it is not clear how much of this represented the domestic road logistics business.