Private equity invests in Hermes

Hermes

The Otto Group has sold a controlling stake in the parcel carrier Hermes UK, along with smaller parts of its last-mile operations in Germany.

The London-based private equity firm Advent International has effectively bought a “75% shareholding in Hermes UK, Advent will also acquire a 25% stake in Hermes Germany, which includes other Hermes Germany Group companies including BorderGuru and a share in the ParcelLock joint venture.”

The deal, announced yesterday (Monday, August 10), is structured so that Hermes is established as an independent company, with the statement from Advent commenting that it will “partner with the current management team to acquire a 75% stake in Hermes UK. Otto Group will continue to own 25% of the company… The management of Hermes UK will continue to lead the business as an independent company, with ‘business as usual’ for employees, suppliers and customers.”

Neither of the parties has disclosed the size of the transaction, however, it is rumoured that the deal values this new Hermes company at £900m (US$1.17bn) including debt.

Otto Group has been struggling with Hermes for some time, with the German retail conglomerate indicating earlier in the year that it was looking a for “strategic partners”. One of the key issues has been the ability of Otto Group to support the considerable capital investment requirements of Hermes which is struggling in the face of meagre returns in the last-mile sector and the threat of competition from large global competitors. This was referred to by the present CEO of Hermes UK, Martijn de Lange, who commented, “the investment will enable us to remain independent and be agile and responsive to future market requirements. It will help to expedite the development of our capacity and technology, supporting the introduction of new innovative products and services”.

It seems likely that Advent has been attracted to the sector that is experiencing rapid growth and that appears to have almost unlimited potential. However, whilst the pricing environment may have eased a little with many e-retailers now willing to charge shoppers for delivery, the level of competition is growing. In markets such as the UK, the large supermarket groups are now fully focussed on home-delivery and groups such as Ocado are likely to begin to edge into market segments beyond food delivery. This could make life very tough for the likes of Hermes. It will be interesting to see what the new company will do in terms of investment in technology and its market positioning. Further acquisition activity should not be ruled out.

Source: Transport Intelligence, August 11, 2020

Author: Thomas Cullen

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