In the global logistics industry, Warburg Pincus may best fit this description. The private equity firm and its senior management—which includes Timothy Geithner, former U.S. treasurer and head of the Federal Reserve Bank of New York, as its president—keep their cards close to the vest in terms of their investments.
Warburg Pincus provides just enough description about its overall portfolio and investments to say what it does. The nearly 50-year-old firm has more than $35 billion in assets under management with over 120 companies in its portfolio. In addition, it has created 14 private equity funds, which have invested more than $50 billion in more than 720 companies across 35 countries, according to its website. Interestingly, this portfolio includes investments in about a dozen logistics and port operations worldwide.
So what, you may ask? Well, Warburg Pincus’s actions of late may be telling the market something striking without actually saying it. Let us set the stage.
Within the past year, there has been a flurry of announcements regarding large-scale acquisitions of logistics and related information technology firms by other equally large players. These deals have seen some of the biggest price tags ever paid for firms with the most significant assets being computers to shuttle information around.
When Singapore-based NOL, parent company of liner carrier APL, announced last year that APL Logistics was for sale, the initial reports suggested the asking price for the 3PL was around $750 million. APL Logistics ended up fetching $1.2 billion from Japan’s Kintetsu World Express in mid-February.
In April, XPO Logistics purchased of French logistics and trucking company Norbert Dentressangle for a whopping $3.5 billion. The deal closed in early June.
Other announced logistics firm acquisitions have been in the hundreds-of-millions-of-dollars range, but still substantial in value.
It appears that the logistics services industry is a healthy sector to invest. Globally, the market is valued at more than $720 billion and the industry remains highly fragmented, which makes it ripe for mergers and acquisitions. In the past five years, Wall Street, including its namesake newspaper, has stepped up its attention to this industry which ensures products are efficiently shipped between the world’s producers and consumers.
This brings us back to Warburg Pincus. Two of those major deals this summer involved this firm letting go significant logistics investments. They include UPS’s acquisition of Coyote Logistics for $1.8 billion in late July and Infor’s purchase of GT Nexus for $675 million in early August. GT Nexus, in particular, was founded in 1998 by Warburg Pincus and the firm had remained a key investor through the years.
These actions now beg the question: why did Warburg Pincus sell these two presumably healthy firms, while the rest of the industry is looking to buy? Surely well-heeled with its own industry analysts who have a deep understanding of markets and forecasts, Warburg Pincus may see something that the rest of the industry hasn’t yet—a looming logistics industry pricing bubble.
While the logistics market is still hot, we may be on the verge of a rapid cooling-off period, and private equity Warburg Pincus may have the foresight to recognize that it’s time to cash out.
This editorial was published in the October 2015 issue of American Shipper.