Deal focus: Carlyle targets e-commerce supply chain
An estimated RMB12.3 trillion ($2 trillion) worth of goods were transacted online in China last year and gross merchandise value (GMV) will nearly double to RMB24.2 trillion over the next three years, according to consultancy iResearch. This has prompted huge demand for high-quality logistics infrastructure, particularly in the small items delivery and courier services segments, which play such an important roles in getting the goods to the customer.
Less-than-truckload (LTL) logistics operators provide road transportation for goods between 15 kilograms (kg) and three tons. In the low-weight segment between 15kg and 500kg, it is worth RMB400 billion in China. Growth may be strong but there should also be some consolidation - essential if China is to reduce logistics costs, which stand at 18% of GDP, compared to 8% in the US.
"The market is currently highly fragmented as mom-and-pop haul trucking companies amount for more than 90% of the market, representing significant consolidation potential," says Eric Zhang, managing director with The Carlyle Group's Asia buyout team.
Last week, the GP announced plans to invest $120 million in Shanghai ANE Logistics, which claims to be the largest LTL operator in China. The transaction, which will come from the $3.9 billion Carlyle Asia Partners IV, is expected to close in the next few months.
"ANE came across as one of the industry leaders that we would like to partner with as we were impressed by its strong management team and unique franchise model. When ANE kicked off its latest round of financing, it attracted strong interest from global and domestic private equity funds," Zhang adds.
Carlyle is the lead investor in the round, with Goldman Sachs and China Renaissance among the other participants. Last July, Warburg Pincus committed $50 million to the company, having invested an undisclosed sum earlier in the year. Prior to that, the business raised a $6.3 million Series A round from Sequoia Capital.
ANE has ramped up quickly over the last five years. Its national delivery network comprises 130 self-operated sorting centers, more than 4,000 contracted trucks and about 5,000 franchised pick-up-delivery stores. Logistics businesses tend to require large amounts of capital and a franchised model reduces the sums needed on a day-to-day basis. So, ANE is able to lower delivery fees and access a large customer base, while maintaining sustainable income from franchisees.
The new capital will be used to enhance the company's infrastructure and expand its network coverage in China. Carlyle will also leverage its experience in franchising and synergies with other portfolio companies.
"The company is led by an experienced senior management team with a combination of entrepreneurial drive, professionalism and strategic vision. We are confident that the company will emerge as one of the few most reputable entrepreneurial platforms in China's logistics space," says Zhang.
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