Allcargo ventures into US, buys logistics company for $50 mn

Mumbai: Allcargo Logistics has bought US-based Econocaribe Consolidators for about $50 million ( Rs 312.25 crore), an acquisition that enables the Indian firm to enter the North American market, pushing its share price up as much as 13% on the BSE. The buyout gives Allcargo the much-needed access to the world's largest economy, and many big clients.

Econocaribe Consolidators is one of the largest non-vessel operating common carriers (NVOCC) in US, with 9 offices in the country and 22 receiving terminals in the US and Canada. The deal, Allcargo's seventh acquisition in the last eight years, is expected to immediately add to its earnings.

Econocaribe, the revenue of which grew 15% last year, is a zero-debt company. Operators like Econocaribe don't own vessels but buy space in other logistics companies to ship cargo. They are more resilient to economic slowdowns.

"When we don't have a presence in the US, many customers don't want to work with us. There are many global customers who want one company to serve all their requirements," said Shashi Kiran Shetty, executive chairman of Allcargo.

With this buyout, Allcargo, a part of the Avvashya Group, can now tap the US business of big logistics companies like DHL and UPS, the company said. Allcargo already serves these companies elsewhere in the world. Allcargo expects that with the addition of new clients, volume in and out of the US will grow, aiding overall profitability. The acquisition also gives Allcargo a share of the growing trade within the Americas.

Even though the deal comes at a time of severe economic slowdown in India, Shetty is not too worried as slowdown is a thing of the past for most of the developed economy. "The option for us was to build or buy. Although it is a large amount we are paying, we are comfortable. And we have a platform to operate from day one."

Allcargo's appetite for acquisitions is not over yet. The company, in which private equity firms such as Blackstone, New Vernon and Acacia own about 23 %, is in advanced negotiations to buy a company with presence in Australia and Europe in the next two months. Shetty declined to share more details on the acquisition.

Allcargo is buying Econocaribe through its wholly-owned subsidiary, ECU Line, in Belgium. Almost 70% of the funding for the deal is coming from Belgium banks, while the rest of it is being funded by ECU Line's internal accruals.

Allcargo raised funds from Belgium banks at less than 3% interest.

Allcargo shares closed 11.42% up on Friday. The stock has shed more than 15% of its value in the last six months due to a slump in cargo volumes.