Potential risks to multi-billion-dollar deals closing are always numerous and naturally they weigh heavy on the minds of any investors implicated.
It was of little surprise, then, to see deal certainty listed as part of the rationale why investors in Global Logistic Properties’ (GLP), the logistics property giant with a global portfolio of 600 million square feet across China, Japan, the US and Brazil, and a fund management platform with $39 billion in assets under management, selected a consortium of buyers, led by the firm’s chief executive Ming Mei, to win an auction to buy it.
For a cash consideration of S$3.38 ($2.48; €2.1) per share reflecting a bid of S$16 billion, Nesta Investment Holdings – comprising Mei, investment firms HOPU and Hillhouse Capital, Bank of China Group Investment and Vanke – has been selected as the preferred bidder for GLP in what will be one of the biggest M&A transactions in Asia.
Nesta’s selection comes in July after a long sales process. The offer represents an 81 percent premium over GLP’s 12-month average share price and 30 percent over its March 31 net asset value per share.
Shareholder approval is still required. But with Singaporean sovereign wealth fund GIC, as the single largest shareholder of the company with a 36.84 percent stake providing an irrevocable undertaking to vote in favor, this appears to be the end of a process which began back in December when GLP hired investment bank JPMorgan and set up a special committee of four independent directors to conduct the customary pre-sale initiative – a ‘’strategic review’.
Ultimately Nesta edged out Asia logistics rivals e-Shang Redwood (ESR), the only other bid shortlisted for final evaluation, for the Singapore-listed company. One source familiar with the sale process suggests the underbidder felt its opposition had an unfair advantage and that its own access to information was limited.
GLP maintained at the time the review process was carried out independently and it put measures in place to alleviate any potential conflict of interests. Sources close to the strategic review also told PERE that, during the review, a team of people were dedicated to making sure it was responding to any queries and that, over the process, this team addressed over 3,000 questions and made available 270,000 pages over 10,000 or so documents.
Legal advisors Allen & Gledhill and financial advisors JPMorgan too were heavily involved in the due diligence process to offer best practices in making the relevant information available without breaching regulations.
“The objective of the strategic review is to maximize value for all shareholders, which is why we are singularly focused on ensuring that the process is conducted in a fair and independent manner,” Seek Ngee Huat, chairman of the GLP board who led the special committee undertaking the strategic review, said in response to the criticism.
But, despite recusing himself from all board discussions and decisions relating to the strategic review, Mei did have the advantage that is true of all management buyouts – a deeper understanding of what is a complex business.
“It was a combination of price and conditions. Insider consortiums always know more about a business than someone from outside…that is normal,” a potential bidder said.
It is this strong capital backing and an innate knowledge of the business which has led parties with intimate knowledge of the process and onlookers alike to believe a Mei-consortium was always favorite to win.
Continuity amid change
A Mei-consortium winning bid was the result favored among GLP’s fund investors.
Public M&A transactions are closely guarded processes leaving fund investors in the dark as to the future of the company they have entrusted their capital and invested alongside. As such, multiple GLP investors told PERE that they were keen to see Mei and his team stay in place.
“They know the portfolio best, do the best for tenants, and the consortium were large stakeholders in the company anyway,” said one US-based investor who asked not to be named. “They are also a huge co-investor, so there is a lot of comfort to take from that.”
Another investor who spoke on the condition of anonymity said that it is far from ideal to be caught up in an M&A situation and that, in instances such as this, uncertainty that the previously agreed investment strategy may change is unattractive.
Logistics market specialists speculated the transaction might result in a change of focus for GLP. They pointed to the Chinese make-up of the consortium and GLP’s huge market lead in the country – 57 percent of GLP’s net asset value is in China and it owns around 161 million square feet of logistics space than its nearest rival Goodman Group, for a re-focus on China and then a piecemeal sale of the rest of the business.
Yet, the message from Mei is one of continuity and on a recent earnings call he said: “I just want to reemphasize, in line with the statement made by Nesta this morning, that we expect to continue to grow the business and maintain its current track.”
He added that “our strategy remains the same and I will continue to be the CEO…the team and I are committed to this journey.”
That journey will see Mei’s GLP fund platform put to work $11 billion of uncalled capital, and he and Nesta have already earmarked a potential new China income fund and an expansion into Europe.