The rumour had been circulating in China’s express logistics sector for a while: BEST inc. (NYSE: BEST) was looking to divest its domestic express business, while J&T was one of the most likely buyers. TikTok’s parent ByteDance was rumoured to be a potential buyer too.
Yesterday the news was announced: J&T is buying BEST’s China express delivery business, including debt, for US$1.06 billion. BEST will retain its other businesses including supply chain management, freight, UCargo and Global.
The story sent BEST’s prices briefly up to US$2.44, before decidedly plugging again:
What are the implications of this acquisition?
Some of our thoughts:
- It is definitely a sensible move for BEST, which has been running a loss for six straight years. Debt had piled up to be more than 90% of total assets. It was a situation that would be very hard to turn around. Selling a loss leader (65% of revenue though) allows it a chance to survive;
- With the BEST acquisition, J&T would easily achieve a combined volume of more than 43 million parcels a day. This will place J&T as the 3rd largest player in China in terms of order volume, and not far behind Yunda Express and YTO Express;
- J&T will also increase its number of service points by more than 30%, reaching 30,000. That will give it a strong impetus to further grow;
- Integration of a last mile logistics business is easier than we think – the key is system process, and ultimately customer experience. The issues of culture etc. are theoretically less relevant in this industry. However, success of integration is not given;
- Alibaba, through a number of entities, owns about 1/3 of BEST’s shares. Alibaba ecosystem also contributes more than 40% of the orders of BEST express – will J&T be able to retain this large client is still a question mark, given its rumoured relationship with Pinduoduo. Our sense is it will – cutting BEST off would be unwise for Alibaba, especially in the current anti-trust regulatory environment;
- With growth still in view, and international expansion aggressively taking place, J&T will be able to lure capital and talent at least for the short term;
- J&T has shown that it is able to deliver aggressive growth, and investors are placing their trust now. How to manage increased complexity moving forwards will be a challenge, but not one that impossible to overcome.
Who is J&T report
Later this month, we will be releasing the “Who is J&T” report – its history, organisational capabilities, strategy, and ecosystem of partners.
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