Warburg Pincus-Backed Logistics Developer e-Shang Merges with Redwood Group

Two of Asia’s fastest growing warehouse developers merged yesterday in a stock-only deal to form a new regional powerhouse in the logistics sector, according to parties familiar with the transaction.

The merger of Shanghai-based e-Shang with Singapore’s Redwood Group creates a logistics real estate platform spanning mainland China, Korea and Japan as the development of e-commerce continues to drive demand for modern warehouse space in the region.

The combined company also brings together some of the world’s largest pension and private equity investors with e-Shang having backing from Warburg Pincus, Dutch pension fund manager APG and Canada’s CPPIB. The Redwood Group has also received extensive investment from global players, including Dutch pension fund manager PGGM and Sam Zell’s Equity International.

Aiming for a $1 Billion Hong Kong IPO Within One Year

While no information on the new company’s valuation has been released at this point, the merger combines e-Shang’s rapidly expanding portfolio in China with Redwood Group’s strength in Japan as well as the Singapore group’s own set of projects in China. e-Shang also established a Korean subsidiary, Kendall Square in 2014, and – together with APG and CPPIB – has since committed $500 million to projects there.

The deal is being billed as a merger of equals, with the combined company said to be targetting an initial public offering within one year’s time. A Reuters report in November last year said that e-Shang was targetting a $1 billion IPO on the Hong Kong exchange during 2016. Emails from Mingtiandi to e-Shang regarding the transaction went unanswered, while representatives of the Redwood Group declined to comment for the record. An official announcement of the deal is expected to be circulated on Monday.

The combined company will be able to offer retailers, shipping companies and other large users of logistics space a platform for leasing space across Asia’s largest markets as warehouse developers in the region scramble to catch up with industry leader GLP. The two companies are said to be planning to still develop and manage their warehouse facilities separately.

While falling short of GLP’s 48 million square metre global footprint, the combined e-Shang/Redwood platform has over 2.2 million square metres of warehouse space in its portfolio, with e-Shang having another two million square metres under development, according to its website.

In an announcement in November last year e-Shang said that it aims to build a portfolio of 1.5 million square metres of logistics space in Korea over the next several years.

Logistics Entrepreneurs Hit It Big With Asian Platforms

Should the newly combined company and its IPO prove successful, it would be a major victory for the entrepreneurs behind e-Shang and Redwood Group, as well as their private equity backers.

Since it was founded in 2011 by local executives Jeffrey Shen and Sun Dongping, together with US private equity firm Warburg Pincus, e-Shang has expanded rapidly to become a major player in the mainland logistics market. Along the way the real estate startup has received backing of over $1.1 billion from CPPIB and APG, along with a $120 million loan from Goldman Sachs.

While a few years older than e-Shang, the Redwood Group also has been a relatively quick success story for logistics real estate veterans Charles de Portes and Stuart Gibson, who co-founded the company in 2006.

Since that time the Redwood Group closed on its own Euro 95 million ($103 million) investment fund in July 2012, entered into a strategic partnership with Sam Zell’s Equity International in 2013, and received $144 million in backing from PGGM in 2014.

In a move potentially related to the merger, Redwood Group veteran Jai Mirpuri was promoted to Managing Director with the company this month, after previously serving as its director for investments.