Maersk is paying $3.6bn for Li & Fung’s contract logistics business as the world’s largest container shipping line works to boost its land-based operations.
Flush with cash from record high shipping freight rates, the Danish group is seeking to go beyond its core ocean business and add on everything from ecommerce capabilities to road and air freight.
Maersk is buying the contract logistics part of LF Logistics, a Hong Kong-based company owned 78 per cent by parent group Li & Fung and Temasek holding the rest. It will also enter into a strategic partnership with Li & Fung.
“The acquisition of LF Logistics is an important and truly strategic milestone on our journey to become the global integrator of container logistics,” said Maersk chief executive Soren Skou.
Container shipping groups have enjoyed a bumper year as tight supply chains and booming demand following the first wave of the Covid-19 pandemic have led to sky-high freight rates.
While many freight lines have made large orders for new vessels to be delivered in several years, Maersk and French competitor CMA CGM have been focusing more on land-based logistics to help them compete against the likes of DHL and Kuehne+Nagel as ecommerce rapidly expands.
LF Logistics operates 223 warehouses in 14 countries across Asia and works with fashion, retail and consumer goods multinationals in the region.
The deal has an enterprise value of around $3.6bn including lease liabilities, while an earnout of an additional $160m payment based on future financial performance is possible. Li & Fung will retain LF’s global freight management business as part of the deal.
It more than doubles LF’s valuation from 2019 of $1.4bn when Temasek, Singapore’s state-backed investment company, bought its stake.
Jorgen Lian, shipping analyst at DNB in Norway, said the acquisition was a “substantial expansion” of Maersk’s logistics business but at a heady price, which would force the Danish group to show it can realise its growth targets.
LF’s contract logistics operations is expected to have revenues of $1bn this year with adjusted earnings before interest, tax, depreciation and amortisation of about $250m. Maersk itself is expecting underlying ebitda of $22bn-$23bn this year, up from $8.3bn last year.
“With this move, we will boost our warehousing and distribution offering and respond to the rapidly growing needs of our customers for contract logistics,” said Vincent Clerc, Maersk head of ocean and logistics.
Joseph Phi, chief executive of both Li & Fung and LF Logistics, added: “We recognise that for LF Logistics to be a global leader in the industry, achieving scale is of paramount importance. Maersk provides the ideal fit for our people and our customers.”