DSV to acquire UTi Worldwide for $1.35 billion in latest 3PL M&A deal

More than nine months after saying it was not for sale, Long Beach Calif.-based non asset-based third-party logistics (3PL) services provider UTi Worldwide has apparently changed its tune, with the company saying it has entered into a definitive agreement to be acquired by Denmark-based global 3PL DSV for $1.35 billion and $7.10 per share.

The transaction is expected to be completed between January 1, 2016 and March 31, 2016 and is subject to approval by UTi shareholders along with customary closing conditions and regulatory approvals.

UTi provides various services, including air and ocean freight forwarding, contract logistics, customs brokerage, distribution, inbound logistics, and truckload brokerage, among others. It has 310 offices and 230 logistics centers in 50 countries. DSV is a global supplier of transportation and logistics services, including global air and ocean freight, European road freight, and contract logistics. Fiscal year 2014 revenue for UTi was $4.41 billion. The company has 530 offices and 130 logistics facilities in 75 countries. DSV had annual revenue of $8.7 billion (USD) in 2014.

In December 2014, UTIW issued a statement in which it shot down speculation that it would be acquired by DSV. UTi’s statement was issued in response to a Bloomberg report published on December 3. The report indicated that UTi was in “advanced talks to sell itself to DSV A/S” and has been in sale discussions since mid-2014 and was possibly reaching an agreement as soon as this month, according to people whom declined to be identified, the report said. And the report added that with a key focus on its services as a non-asset-based freight forwarder, including customs brokerage, warehousing services, Bloomberg said that air and ocean freight forwarding were UTi’s biggest businesses in the 2014 fiscal year, accounting for about 59 percent of its $4.4 billion in revenue.

UTi CEO Ed Feitzinger said that the company is excited to be joining forces with DSV, noting that for its clients and employees, the potential combination of the two businesses has a strong cultural fit, aligned strategy, and a complementary client base and geographic footprint.

“We have the opportunity to draw on the current strengths and scale of both companies to bring solutions to our clients that we could not have delivered on our own,” he said in a statement.

And Kurt K. Larsen, DSV Chairman of the Board of Directors, explained that this deal is a “great step” for both companies, adding that this will create a stronger company with an expansive 3PL footprint along with providing an exciting value proposition for customers.

DSV officials added that acquisitions are major facet of the company’s growth strategy, explaining that UTi is expected to increase DSV’s annual revenue by about 50 percent, with the combined workforce expanding to 44,000 people in in 84 countries, 848 offices and 339 logistics facilities.

“The Air & Sea Division will be significantly strengthened, and DSV will increase its industry specific capabilities across all divisions,” said DSV. “Furthermore, DSV will now be truly global within contract logistics and expand into road freight activities outside Europe. This will enable the company to offer its customers a broader range of services.” It added that the combined companies will have a more balanced geographical footprint with approximately 61% of revenue in Europe, Middle East and North Africa, 17% in Americas, 16% in Asia (APAC) and 6% in Sub-Saharan Africa.

This news comes at a time when UTi has seen revenues dip in recent years, with the Wall Street Journal reporting that its fiscal second quarter earnings drove shares to their lowest levels in nearly ten years. Last December’s Bloomberg report said that UTi had lost about one-quarter of its market value since disclosing on Feb. 25, 2014 that it had breached some loan covenants. It added that the company issued new debt, as well as convertible preferred shares to P2 Capital to fix the liquidity crunch, with now P2 UTi’s biggest investor.

“This deal definitely makes sense for both companies,” said Dick Armstrong, chairman of supply chain consultancy Armstrong & Associates. “DSV has been successfully aggressive over the years, and UTi has had a mixed bag in doing some things very well, including domestic transportation management, dedicated contract carriage on the West Coast, and TMS. DSV is a great buyer for UTi, with this deal bringing a lot of potential together, and it comes at what looks like a reasonable price while helping DSV to really round out its portfolio.”

Armstrong said UTi has not fared as well on the international side, though, as it has continually lagged behind the company’s domestic performance. And he added that DSV is proficient at transportation management, with its real strengths being relative weaknesses for UTi. Contract logistics, he said, has always been a core strength for UTi, which, in turn, benefits DSV.

“DSV has transformed itself into one of the leading truly worldwide and diversified logistics service providers, wrote John Manners-Bell, CEO of London-based Transport intelligence, in a research note.  “Although it will have to work hard to refashion UTi’s various business, if it gets it right it will lay the foundations for substantial growth on a global scale. The purchase is a risk but a modest and calculated one.’

This deal is the latest in a flurry of 3PL-based M&A activity, with some other notable recent deals, including: FedEx’ planned acquisition of TNT Express, which is still pending approval from European regulators; various acquisitions made by XPO Logistics; UPS acquiring Coyote Logistics; and Geodis acquiring OHL.

3PL growth through acquisition has become a prevalent theme in the sector to counter slow growth in certain geographic regions like southern Europe and reduced demand coming out of Asia-Pacific nations.