Allcargo in talks to acquire stake in Gati

Allcargo Logistics is in talks to buy a stake in smaller rival Gati, people with knowledge of the matter said, as India’s biggest cargo company attempts to boost its presence across Asia’s third-largest economy.

Allcargo is in discussions to acquire Gati, that’s 6 per cent owned by Goldman Sachs Group, at an equity valuation of about ~13 billion ($183 million), one of the people said, asking not to be identified as the talks are private. The purchase will trigger a mandatory offer to buy Gati’s outstanding shares, the people said.

India’s logistics and warehousing industry is attracting companies from Blackstone Group to Warburg Pincus as they seek to tap into a sector that Gati forecasts will be worth $217 billion by 2020. That’s buoyed by demand from e-commerce firms such as Amazon.com and Walmart’s India unit to provide last-mile connectivity into cities as well as remote hinterlands across one of the world’s largest landmass.

“For Allcargo, which was primarily into foreign trade business, buying stake in Gati is a clear de-risking initiative as the latter is more focused on domestic business,” Mathew Antony, managing partner at Mumbai-based advisory firm, Aditya Consulting. “This acquisition will help Allcargo offer total logistics solutions to e-commerce companies.”

The board of Allcargo is likely to consider the proposed acquisition in October, the people said. Gati has managed to secure approval for the sale from its Japanese partner Kintetsu Group in its flagship company, GatiKintetsu Express, they said.

Allcargo doesn’t comment on “market speculations,” an external spokesman for the company said, while Gati declined to comment.

Talks are still progressing and contours of the deal may change, one of the people said. Under Indian rules, a purchase of 25% stake in a company triggers an open offer to buy an additional 26% from public shareholders.

Allcargo’s biggest revenue generator is shipping and port-based logistics, while Gati moves goods across India and claims to service 99 per cent of the nation’s districts.

Allcargo is also building large warehouses in four Indian cities and reworking its existing storage facilities near ports to provide services to e-commerce companies, while Gati has already built a logistics infrastructure helping it to deliver over 6 million small cargo packages a month.

The founders of Gati, led by Mahendra Kumar Agarwal own 14.4 per cent of the company, while overseas investors including Goldman Sachs and Kintetsu World Express, control 17.1 per cent, according to data on BSE’S website.