A.P. Moller - Maersk made one of its biggest deals to date on Wednesday with a $3.6 billion purchase of Li & Fung's Asia-Pacific logistics subsidiary, LF Logistics.
The all-cash deal comes with its usual bells and whistles. Maersk will purchase a 100% stake in LF Logistics, taking control of the Hong Kong-based company's in-country logistics and global freight management business units. The deal is expected to close in 2022, pending regulatory approvals.
But it also comes with a twist: After the deal closes, Li & Fung plans to acquire the global freight management unit back, in order to retain and grow it on its own terms.
Both Maersk and Li & Fung aim to be leaders in the end-to-end supply chain management space. But they have different capabilities, a fact which the two companies leaned into to make a deal work. In addition to the acquisition of LF Logistics, the two companies signed a "long-term strategic partnership" to work together on supply chain services for customers.
"With Li & Fung’s upstream digital and sourcing expertise and Maersk’s downstream logistics capabilities, we will begin to offer our respective customers the opportunity to take advantage of this unique end-to-end value chain proposition anchored upon operations excellence, technology, and sustainability," Spencer Fung, group executive chairman of Li & Fung, said in a statement.
For Li & Fung, it was more of a cash-rich divestment. The deal allows the company to shed logistics assets to grow its freight management and supply chain finance portfolio.
But for Maersk, documents disclosed to investors show it's a growth milestone that caps a year of acquisitions.
"The acquisition of LF Logistics is an important and truly strategic milestone on our journey to become the global integrator of container logistics," Soren Skou, CEO of Maersk, said in a statement. "With the acquisition of LF Logistics, we add critical capabilities in Asia Pacific to support our customers long term growth in Asia Pacific as well as capabilities and technology we can scale in our contract logistics business globally."
As part of the deal, Maersk's global warehouse footprint will grow for the first time beyond 100 million square feet due to the 223 warehouses LF Logistics owns in 14 countries throughout the Asia-Pacific. The footprint, plus LF Logistics' 10,000 employees and estimated $10 billion in revenue, will create the "7th largest contract logistics player globally," according to an investor presentation.
But perhaps the biggest milestone may be Maersk's ability to gain LF Logistics customer base, which could allow the company to diversify its revenue stream, Brittain Ladd, a supply chain business consultant, wrote on LinkedIn.
"The LF deal would be Maersk’s biggest move so far to boost its inland logistics business which it hopes will eventually bring in half the group’s earnings. At the moment, around 80% of revenue comes from ocean operations," Ladd wrote, adding many of Maersk's customers do not contract the company for inland transportation.
In its investor presentation, Maersk emphasized the acquisition of LF Logistics was part of a larger strategy. Over the past two years, the company has acquired six other companies in smaller deals that have helped grow Maersk's assets in the U.S., Europe and across the supply chain. LF Logistics not only adds a distribution footprint in Asia, but also offers a broader range of services to customers than its previous acquisitions.
For Lars Jensen, CEO of Vespucci Maritime, the LF Logistics acquisition is a symbol of growing trend towards vertical integration among ocean carriers.
"The question is not whether we will see more major acquisitions across the global logistics market in 2022 – the question is rather how many we will see as the major carriers ...are likely to maintain a very high activity level in this respect," Jensen wrote on LinkedIn.
In that respect, Jensen added 2022 should be seen as "a foundational year where the major players position themselves for the battle of the global logistics market – a battle which will continue throughout this decade."
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Maersk buys LF Logistics, signs strategic partnership with Li & Fung