Danish freight forwarder DSV has been reported to be interested in C.H. Robinson’s global forwarding unit.
Reuters reported Tuesday that a small group of investors, which recently met with DSV (DSV.C.DX), were told of the company’s interest in the segment and that the business could sell for as much as $9 billion.
C.H. Robinson’s (NASDAQ: CHRW) forwarding segment has significantly outperformed its freight brokerage business, which suffered during the pandemic as contract truckload rates struggled to catch up with a bustling spot market. High demand for ocean and air services, however, pushed forwarding volumes to new highs on the platform.
Forwarding revenue at C.H. Robinson more than doubled in 2021 to $6.7 billion. The unit reported an adjusted gross margin of 16% during the year with an operating margin nearly half that level. The unit has already booked $2.2 billion of revenue in the first three months of 2022. Sizable increases in pricing as demand was robust and capacity was tight, along with market share gains, drove the top line increases.
The potential reported selling price implies the unit would go for a mid-teens multiple of trailing 12 months’ earnings before interest, taxes, depreciation and amortization.
Morgan Stanley (NYSE: MS) analyst Ravi Shanker said the sale of the division would be a deviation from C.H. Robinson’s long-term strategy “but does not come as a complete surprise” given recent activist investor interest in the company.
“When Ancora was announced as a strategic investor at CHRW earlier this year, we noted that potentially breaking up the company and spinning/selling Forwarding could be one of the financial engineering solutions in the cards to try and quickly unlock value,” Shanker said in a Tuesday note to clients. “Management has long stated that they believe the North American Surface Transportation and Forwarding businesses belong together but perhaps the involvement of the strategic investor has driven a change in mindset.”
The deal would give global transport and logistics giant DSV “critical access to trans-Pacific ocean trade lanes,” Reuters sources said. It would also significantly bolster its U.S. presence, which includes 1,700 employees in more than 40 offices.
DSV has made large acquisitions before. It acquired the logistics arm of Kuwait-based Agility Public Warehousing for $4.1 billion last year. In 2019, it announced it would acquire Swiss-based Panalpina in a more than $5 billion transaction.
“It is well known in the market that M&A is an important part of the DSV strategy and we have a fiduciary obligation towards our shareholders to monitor the market and play an active role in the continued consolidation of our industry,” a spokesperson with DSV told FreightWaves. “As a part of this strategy we would review any potential opportunities, but are currently not aware of any divestment process at C.H. Robinson.”
A spokesperson from C.H. Robinson said the company “does not comment on rumors and speculation.”
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