Allegro to acquire Australia express delivery business

The private equity firm has secured A$500 million ($386 million) in funding to complete the separation and drive a business transformation. The transaction comprises equity and debt backed by Commonwealth Bank of Australia, Scottish Pacific, and Gordon Brothers.

Japan Post Group, the ultimate owner of Toll Group, will receive only JPY700 million ($6.5 million), with Allegro assuming responsibility for  TGS’ liabilities. The consolidated book value of the target company is A$820 million, even though operating revenue reached A$2.97 billion in the 12 months ended March 2020. The operating loss was A$100 million.

“The business has faced challenges, but we are excited by the opportunity ahead and have great confidence that Toll Global Express can realize its full potential,” said Adrian Loader, one of Allegro’s founding partners, in a statement. He added that TGS has high-quality assets, ranking number one or two in its core market segments.

TGS provides express parcel, freight delivery, and domestic forwarding services in Australia, and transport and contract logistics services in New Zealand. It serves more than 36,000 customers and employs over 8,000 people.

Japan Post acquired Toll Group for A$6.5 billion in 2015, but the holding period has been challenging. An unforeseen deterioration in Australia’s economy, as well as a sharp decline in resource prices, resulted in the company recording a JPY400.3 billion impairment loss in 2017. This contributed to Japan Post posting an overall consolidated net loss of JPY28.9 billion.

“After that, we focused on cost reduction measures such as renewing Toll's management team, reducing personnel and consolidating divisions. We have taken measures to lay the foundations for recovery and future growth, but in recent years the competition has intensified, the business has been targeted by cyberattacks, and demand has declined due to the pandemic. As a result, the business environment has become more difficult,” Japan Post said in a filing.

Toll Group is the mainstay of Japan Post’s international logistics segment. Operating income came to JPY634.9 billion in the 2020 financial year, down from JPY700.7 billion and JPY704.3 billion in the two preceding years. Net operating income held steady at JPY10.3 billion in 2018 and 2019 but turned into a loss of JPY8.7 billion in 2020.

The company considered its strategic options and decided that offloading the express business, where performance was still deteriorating, was the best course of action. A sale process was launched last November.

John Mullen, Toll’s chairman, said in a separate statement that the divestment is consistent with the company’s strategy to focus on its core contract logistics and freight forwarding businesses.

Allegro is currently deploying its third fund, which closed at the hard cap of A$290 million in late 2017. The firm also raised a A$92 million sidecar for larger deals.

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• Topics
• Australasia
• Buyouts
• Restructuring
• Australia
• Logistics
• Allegro Funds