The planned sale of a South Korean parcel delivery firm by Baring Private Equity Asia to a strategic buyer has fallen through, after the last shortlisted bidder UPS finally decided to walk away from the deal, estimated to be worth $250 million-$340 million, over a price difference, investment banking sources said on June 27.
Baring PEA had put unlisted Logen Co. Ltd., the No. 4 package delivery company in South Korea, up for sale earlier this year, about three years after it acquired the whole of the firm for 158 billion won ($134 million) in 2013.
The private equity firm had hoped to fetch around 400 billion won ($340 million) from the prospective sale, including a management right premium. But potential buyers bid about 300 billion won ($253 million), failing to narrow their price gap.
After two other shortlisted bidders – DHL of Germany and South Korea-based STIC Investments – had dropped out of the bidding, UPS of the United States was the only bidder for Logen which earned 25.8 billion won in operating profit against sales of 351.3 billion won last year.
The banking sources said that UPS made a final decision not to buy Logen, after completing a due diligence study on the South Korean company earlier this month. UPS will deliver its final decision to Baring PEA soon.
“UPS may feel uncomfortable with Logen’s agent-based business model which is strange to foreign companies,” one of the investment banking sources told the Korea Economic Daily. “It seems that (UPS) took time to study the sustainability of the business model.”
Unlike other parcel delivery firms, Logen has built an “asset-light” business model based on agents, which is sort of an alliance of individual businessmen, not franchises: each agent has its own customer network by region. The business model helps the head office to minimize facility investments and hiring, which the seller of Logen highlighted as the beauty of the company.
However, bidders viewed the business model as unsustainable. Because each agent manages respective network and delivery systems, it would be difficult to provide consistent services and attract large-sized customers.
Also, an integration problem with Logen’s local rival, KGB LOGIS Co. Ltd., which Baring PEA acquired last year as an add-on investment, was cited as another obstacle to the negotiations with UPS. At the end of last year, KGB LOGIS had debts of 25.5 billion won, far outweighed its capital of 300 million won.
LOOKING FOR FINANCIAL INVESTOR; CVC CAPITAL SEEMS INTERESTED
To prepare against a possible breakdown of the negotiations with UPS, Baring PEA had been separately in contact with financial investors. In particular, CVC Capital, which had participated in the preliminary bidding for Logen but not included on the shortlist, is purportedly interested in Logen. If a new bidder comes up, Baring PEA will receive a letter of intent around July.
However, industry sources speculate that Baring PEA would be unlikely to fetch as much as it had wanted from the sale of Logen.
“Still, potential candidates who remain interested want to bid about the mid-200 billion won range, so the discrepancy between the seller and the buyer will remain wide,” an investment banking source said. “If the price gap fails to narrow, (Baring) might look for other ways to exit.”
Baring PEA is reportedly considering floating Logen in a stock market, or taking another one to two years to raise its corporate value further, before putting it back up for sale.
By Soram Jung
<Edited by Yeonhee Kim>