PE-backed e-Shang boosts Asia footprint through merger
China-based warehousing operator e-Shang, which was founded by two local entrepreneurs in conjunction with Warburg Pincus, has agreed to merge with Asian counterpart Redwood Group as it builds scale towards a public market listing.
The all-stock deal will lead to the creation of a real estate logistics platform with more than 3.5 million square meters of projects in operation or under development in China, Japan and South Korea. The merged entity - which will be known as e-Shang Redwood - will have a further 8 million sqm in its development pipeline.
Set up in 2011, e-Shang currently has 20 projects, including e-commerce, retail and cold chain, covering 2.3 million sqm under operation or development. The company has received approximately $1.6 billion in private equity funding from the likes of Warburg Pincus, Goldman Sachs and APG Asset Management. The most recent round in 2014 saw APG pay $650 million for a 20% stake in the company.
Last November, e-Shang took what was a China-only business into South Korea through a joint venture with APG and Canada Pension Plan Investment Board (CPPIB). It has 600,000 sqm of projects under development and a pipeline of one million sqm. The initial equity investments totaled $500 million, with the option to increase capitalization to $1 billion.
The business model in China and Korea is predicated on the rapid expansion in online retail and the demand this creates for modern logistics infrastructure capable of delivering goods to customers. It is estimated that online retail in China will see compound annual growth of 31% between 2015 and 2018, with Japan expanding 11.3% and Korea 9.3%.
Redwood was founded in 2006 by two executives who previously established logistics platforms in Japan for Prologis and AMB. It has 1.2 million sqm in operation and under development in China and Japan. The company's backers include Dutch pension fund PGGM, Morgan Stanley, CBRE, and pan-Asian private equity firm PAG.
"We continue to strive to build the preeminent logistics platform in Asia, and the merger will yield significant benefits for the combined group with enhanced integrated capabilities, deeper capital relationships and greater scale in advance of a targeted IPO," said Jeffrey Perlman, managing director at Warburg Pincus, in a statement.
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