Deutsche Bahn’s Logistics Unit Is Flailing – Can CVC’s €14B Bid Save It?

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Spotlight

All aboard? CVC Capital Partners is one of two finalists left in a bidding war for Deutsche Bahn’s logistics unit, DB Schenker. CVC is not alone in its bid, having taken on the Abu Dhabi Investment Authority and Singapore’s sovereign wealth fund GIC as co-investors. 

The other party standing is the Danish transport group DSV A/S. 

Both groups have submitted bids of €14 billion ($15.6 billion) for the asset, though CVC is willing to go up to €16 billion if the German government reinvests in the company for a 25% stake. Both bids are binding and represent the final bids in the sale process. They fall below the previously reported valuations for DB Schenker of €15 billion to €20 billion. A winner is expected to be chosen by the end of this year, with the deal’s completion coming in 2025.

The sale process for DB Schenker, which made up over a third of Deutsche Bahn’s overall sales in 2022, began in December 2023 in an effort by the company to pay down its debts and focus on its “core business.” Twenty bidders and consideration of an IPO were immediately on the table. 

Eventually, that whittled down to seven non-binding bids. Maersk, a Danish shipping group, and Bahri, the national shipping company of Saudi Arabia which placed the largest bid, were the last to pull their bids in July, leaving CVC and DSV to battle it out. 

CVC’s bid is currently the favorite amongst Germany’s most powerful labor union, Verdi. Verdi fears DSV would cut jobs during the integration process – more specifically, Verdi fears it would cut 5,300 of the 15,000 people it employs in Germany. In turn, DSV has claimed that it will place employment guarantees for two years post-acquisition at the company, while investing €1 billion over three to five years to improve the company’s profits.

On track, or off the rails? Operating profit for DB Schenker last year was €1 billion, down from €1.8 billion in 2022. There has been a further decrease in H1 2024, with operating profit totaling €520 million, down 17% from the €626 million of H1 2023. Recent poor performance is blamed on reductions in air and sea freight turnover as well as losses associated with exchange rates.

How can CVC improve profits? According to Deutsche Bahn itself, Schenker is already cutting costs and decreasing its workforce – PE’s stereotypical playbook. But despite that already being put to work, there is still more to be done. A report states that, if selected as the buyer, CVC plans to list DB Schenker on the Frankfurt Stock Exchange while maintaining the company’s branding and German headquarters.

Additionally, CVC will want to help DB Schenker cash in on the e-commerce boom – something it has yet to benefit from, as its related volumes were only up 1% in H1 2024. 

This isn’t the only tailwind CVC could ride – provided it is able to keep up with the steep competition and high operational costs that plague the global logistics sector. For example, Statista estimates that the European third-party logistics market is estimated to grow at 2.61% between 2024 and 2028 to over $310 billion.

As such, many financial institutions are positive on European logistics:

• Real estate manager AEW revised its growth projections for the sector upwards in light of Europe’s macroeconomic resurgence (a phenomenon that has boosted broad PE investment on the continent, as we explored in our European Private Equity Report 2024). 
• CBRE Investment Management cites the stabilization of demand to pre-pandemic levels, alongside the rise in “reverse logistics” (returning purchased items) as a boost to demand.
• Franklin Templeton maintains its conviction in European logistics, noting that rental rates for logistics have recently plateaued while the market’s growth fundamentals remain strong. Its subsidiary, Clarion Partners, also notes this, adding that e-commerce, shifting globalization, and more resilient supply chains are also due to add pockets of opportunity in the sector. 

CVC does have operational experience with e-commerce and logistics. Its current overall portfolio includes Scan Global Logistics, a Nordic cargo company the firm invested in last year; WWEX Group, a merger CVC spearheaded between two logistics solutions providers, Worldwide Express and GlobalTranz Enterprises, in 2021; Packeta Group, a Czech/Slovakian e-commerce delivery service the firm bought a minority stake in at the end of last year; and Fast Group, a Filipino end-to-end logistics group the firm invested in at the end of 2020. CVC is reportedly looking to exit its minority holding of Fast Group as of June of last year.

CVC did not provide a timely response to request for comment.

Buyout News 

Again, deals were sparse last week. 

However, one deal included Wynnchurch Capital-backed M2S Group buying Iconex’s label solutions group. The acquisition is reportedly part of a push to diversify the asset’s lines of business. Financial terms of the deal were not disclosed.

Despite the slow week, there are many interesting deals in the pipeline – particularly in sports. 

We won’t be the first to tell you that the National Football League has finally allowed institutional investors to take minority stakes in all teams but the Green Bay Packers. Reportedly $12 billion in capital has already been committed by players Ares, Sixth Street, Arctos, and consortium “The Avengers” which consists of Blackstone, Carlyle, CVC, Dynasty Equity, and Ludis.

Questions? Email us: editor@valueaddpe.com