Mumbai: 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 developed world, India's freight market is dominated by forwarders ," said Gautami Seksaria , founder and partner, Supply Chain Leadership Council, an organization 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.
According to Manish Saigal, executive director, KPMG, some of the new trends that are shaping investment opportunities in the sector include the emergence of strong intra-Asia trade in turn strengthening the east coast shipping and ports infrastructure , the need for integrated , multi-modal transport networks with a rail focus and specialization in high-end cargo types such as project logistics focused on power or metro coaches or sports logistics.
"With the government making way for guiding tariff instead of fixing tariff for ports, it will give confidence to the investor community to invest in port projects," opines Ms Seksaria. India, the world's second fastest growing major economy after China, will need $1 trillion (Rs 45.1 trillion) worth of investments in infrastructure over the next five years, according to a recent report by research agency Prequin.
India government's maritime development agenda has geared to bring in sizable private money into sector, which is projected to see developments to the tune of Rs 1 lakh crore during the ongoing National Maritime Development Programme. "The government will, however , have to firm up the policy framework governing private investment in infrastructure," said Ms Seksaria, "if it has to continue to attract private capital both domestic and overseas" .
When asked whether the rising interest regime could spoil the sport, she said, "Project debt financing will become further expensive and while, given the imperative nature of developments , it will not be a major setback to our infrastructure development programme, it gives an additional reason to the policymakers to be sensitive to the cause of the private investor" .
According to Prequin, currently there are 38 overseas infrastructure investors, all of them PE funds, with a preference for assets in India. "Of these, 25 have raised an aggragate $9.5 billion, while the rest are scouting for another $7.3 billion," it had pointed out in its report.
