DFDS (MW) has acquired HSF Logistics Group for DKK2.2bn in order to expand its cold chain Logistics business. HSF has yearly revenues of around DKK2.8bn (EBITDA pre IFRS 16 DKK320m) with around half in Denmark and Scandinavia. HSF focuses on cold chain logistics to meat producers and other food producers that operates temperature-controlled supply chains. By focusing and growing in this niche segment DFDS will only to a minor degree be conflicted with current major customers in the Ferry division like DSV. We like the strategic fit and the increased diversification of DFDS on the back of this deal. DFDS acquires HSF for a debt free price of DKK2.2bn.
The acquisition will be made by a newly established company of which DFDS owns 100% of the ordinary shares. Non-voting preference shares will be issued and owned by the sellers. DFDS has a call option to redeem the preference shares over a planned three-year period. DKK930m will be paid on closing and DFDS will also take over DKK460m of net debt (excluding IFRS 16 lease obligations) – hence in total DKK1390m up front in our view. This corresponds to a net debt to EBITDA (Full year EBITDA DKK320m) of 4.3x – which is the same level as DFDS reported in Q3 20 – hence on a full year basis the transaction is expected to leave leverage unchanged. Then over the following three years DKK270m is planned to be paid each year to redeem the preference shares.
The total price (EV) of DKK2.2bn corresponds to 6.9x the annual EBITDA of HSF. DFDS will use existing cash funds for the initial payment of DKK930m. The transaction structure, including preference shares, gives DFDS 100% control and HSF will therefore by fully consolidated in the DFDS Group from closing which is expected in around 3 month. The transaction is expected to be accretive to EPS from closing. Overall we see this transaction as supportive for the credit profile of DFDS as it supports the business profile (larger scale, more diversification in stable markets) while leverage remains largely unchanged on a full year basis.
