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.
More importantly as we did with “Who is Shopee” and “Who is Nubank” reports, we hope to connect all the dots for you. You can subscribe to TheLowDown newsletter to get notified when the report is ready!