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M&A Deals

Advent International’s €1bn acquisition of Hermes

Introduction

Advent International, a US-based private equity firm, will acquire the majority of Hermes’s operations in the UK, as well as a smaller stake of Hermes’s German business, from German mail group and e-commerce company Otto Group in a €1 billion deal. This comes as the surge in demand in the e-commerce sector has made couriers such as Hermes, which delivers parcels for major UK retailers including John Lewis and Next, one of the corporate winners of the pandemic. Hermes, seeing this as an optimal time to expand its operations, is looking for significant investment to finance the new infrastructure and employees needed to facilitate this, in a move to strengthen its UK position in face of fierce competition from Royal Mail and DPD.

Advent International Corporation (details correct as of June 2019)

Founded: 1984

Sector: Financials

CEO: Peter Brooke

HQ: Boston, Massachusetts, United States

Type: Private

Annual revenue: $50 billion

Assets under management: $54 billion

Hermes Group

Founded: 1972

Sector: Home-delivery services

CEO: Stephan Schiller

HQ: Hamburg, Germany

Type: Private

2018/2019 financial year revenue: €3.2 billion

Deal Overview

Otto Group, the current owner of Hermes’s Leeds-based UK business, is set to sell 75% of the company to Advent International, retaining the remaining 25% stake in the business. In addition to acquiring Hermes’s UK business, Advent will also purchase a quarter of its German operations, with both deals set to be complete at a combined price of €1 billion. The acquisition, which is subject to approval by relevant antitrust authorities and both company boards, is yet to be finalised. Hermes, whose search for a strategic partner in recent months has sparked broad interest from other companies including Fed-Ex, will continue to operate as an independent company, with ‘business as usual’ for its customers, suppliers, and employees.

Deal rationale

Hermes looks to expand its delivery capacity

Hermes, having experienced high volume growth rates since the onset of the pandemic, particularly in light of the economic downturn, plans to use investment from Advent upon the deal’s completion to expand its operations, increasing its delivery capacity beyond the 760 million shipments it transported in UK and German operations combined during the 2019/2020 fiscal year. The ongoing transition of increasing online orders saw Hermes UK’s pre-tax profits increase to £46 million in the financial year ending in February 2020, up from £36 million for the same period last year. This deal will allow Hermes to capitalise on this transition, which has accelerated during lockdown, by financing purchases of new infrastructure and over 10,500 “parcel people”, enabling delivery capacity to be increased. Hermes UK’s 31% market share makes it the third largest company in the UK home-delivery market, behind Royal Mail and DPD with 40% and 36% respectively, according to a 2019 report from Apex Insights. This deal, which is aimed at expanding its delivery services, will enable Hermes to expand its position in a competitive UK home-delivery market, helping it profit from the accelerating transition into online orders. According to Martijn de Lange, CEO at Hermes UK, “this is fantastic news for Hermes UK as we continue our upwards trajectory in the fast-growing and capital-hungry home delivery sector.”

Advent International profiting from the home-delivery demand boom

Advent International will acquire Hermes’s operations in an attempt to capitalise on the current and anticipated growth in the delivery sector, with Hermes UK estimating that during the Black Friday and Christmas period this year, parcel volumes will reach record levels. According to Nick Rose, a managing director at Advent International who led the deal, the acquisition of Hermes’s business “is part of a long-term investment play around the fulfilment of e-commerce,” an industry that is rapidly expanding. Advent International has a strong track record of successful partnerships with management teams to grow and develop market positions, with its investment in e-commerce and logistics company InPost seeing significant growth since its involvement in 2017. Hermes, with its industry-leading margins, could be a great acquisition for Advent International, who look to utilise its expertise to increase Hermes’s presence in the home-delivery sector at a time of rapid expansion and profit from the deal.

Sources

https://www.ft.com/content/2bd5d78c-7520-4c3e-a77b-bc477d1f18dd

https://uk.reuters.com/article/uk-hermes-m-a-advent/advent-buys-stake-in-logistics-firm-hermes-from-germanys-otto-idUKKCN2561JY

https://www.businesswire.com/news/home/20200810005347/en/Hermes-UK-Growth-Supported-Investment-Advent

https://www.thetimes.co.uk/article/advent-hands-an-irresistible-offer-to-hermes-c0hrhnxfl

https://www.adventinternational.com/hermes-uk-growth-supported-by-investment-from-advent-international/

https://www.adventinternational.com/advent-international-raises-17-5-billion-for-ninth-global-private-equity-fund-5/

https://newsroom.hermesworld.com/international/2018-results-hermes-group-announces-solid-growth-figures-despite-challenging-market-conditions-1257/

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