Allcargo Logistics, part of the Avvashya Group, has forayed into express logistics segment by acquiring a 44.64 per cent stake in Gati.
“The stake buy is a combination of 10 per cent promoter shareholding that will trigger an open offer of 26 per cent and balance will be via preferential shares. This will bring the total deal size to Rs 416 crore,” Shashi Kiran Shetty, founder and chairman of Allcargo Logistics, said on Thursday.
Founded by Mahendra Agarwal in 1989, Gati pioneered express distribution in India. Today, Gati offers a variety of offers, spanning from express distribution to third-party (3PL) operations. As of September 2019, Gati’s promoter and group promoter stake in the company stands at 17.8 per cent, of which 70 per cent has been pledged. After stake sale, promoter and group promoter’s stake in the company will reduce to 7.8 per cent. Funds for the deal will be a combination of debt and internal accruals apart from the open offer, Shetty said.
Allcargo Logistics plans to sell some of its non-core assets such as cranes and equipment as part of internal accrual arrangement. Also, the firm is in talks with large private equity and real estate players to dilute its stake in five logistics parks. “The plan is to become a minority stake holder in the logistics park segment within two months and divert funds from this deal to lower the debt portion of Gati acquisition,” Shetty said. The firm is in advance stage of talks for sale of its logistics parks stake. The 44.64 per cent stake buy in Gati is not the end of the deal for Allcargo Logistics.
The company has already chalked out a plan to become a majority stakeholder in the express business, he said.
“With acquisition of 10 per cent promoter stake in Gati, we clearly get the management right. The bigger plan is to take controlling stake in the entity in future,” Shetty added.
Kintetsu World Express (KWE), part of the $10.3 billion Kintetsu Group Holdings, Japan, which entered into a joint venture with Gati to form the GATI-KWE subsidiary in 2012, will continue to remain invested and retain its association with GATI, said the company.
Meanwhile, Systematix Corporate Services has acted as an exclusive financial advisor to the parties on the transaction.
According to a Deloitte report in 2018, the Indian express industry is expected to grow at a compounded annual growth rate of 17 per cent and reach Rs 48,000 crore by 2023.
“This alliance strengthens Gati with more management bandwidth, operational synergies, cross-selling opportunities, and financial strength. The alliance will also help consolidate Gati’s position in the domestic logistics sector by adding capabilities that cover the entire range of logistics functions for its customers, and increase its revenue potential,” Agarwal said.