Financial Winds Shift for CEVA
Bensenville, Illinois - May 7, 2013
Wherever CEVA Logistics heads from here, there is little doubt the world’s
fifth-largest third-party logistics company is in for a significant
transformation. In many ways, that’s already under way, with a new strategic
mission and recapitalization plan forming the basis of an uncertain future.
That uncertainty revolves around an 18-month stretch during which the company
reported dismal earnings, withdrew an initial public offering, endured crushing
debt and was downgraded by credit agency Standard & Poor’s. Investors led by
Apollo Global Management, CEVA’s private equity owner, undertook two
Over the past several weeks, industry analysts offered grim prognoses amid
rumors of possible bankruptcy. That talk has quieted with the most recent
debt-for-equity swap and recapitalization plan announced on May 2.
The logistics world is watching. Netherlands-based CEVA is the world’s
second-largest non-asset-based 3PL and largest automotive logistics provider,
with 2012 revenue of about $9.2 billion. CEVA operates in 170 countries and has
more than 50,000 employees worldwide, according to research analyst and
consultant Armstrong & Associates.
Still, CEVA CEO Marvin Schlanger is optimistic. In an interview with The Journal
of Commerce, Schlanger, who replaced former CEO John Pattullo last October,
described the current recapitalization plan as a transformational event that
will make CEVA a much stronger competitor.
In the meantime, it’s business as usual. “The transaction positions CEVA to
better serve our customers and develop new supply chain solutions and services
to meet their needs,” Schlanger said.
CEVA filed for the $400 million IPO with the New York Stock Exchange last May.
The company withdrew the offering last month, citing falling profits. Although
CEVA’s revenue rose almost 5 percent year-over-year in 2012, overall adjusted
earnings before interest, taxes, depreciation and amortization dropped 21.8
percent to $322.4 million.
Within days of the IPO’s withdrawal, S&P lowered CEVA’s corporate credit rating
from “B minus” to “SD,” Selective Default, saying the company’s failure to meet
financial obligations was tantamount to default and cited the risk of bankruptcy
in lieu of a refinancing plan.
The debt-for-equity swap, announced quickly after the IPO’s withdrawal, wiped
out 1.3 billion euros ($1.7 billion) in CEVA’s consolidated debt and about 135
million euros in annual cash interest costs. Investors also agreed to inject 230
million euros into CEVA’s logistics business.
The deal with Apollo, Capital Research and Management, and an institutional
investor who hasn’t announced its participation follows a $1.1 billion
debt-for-equity swap in early 2012 that Apollo initiated in advance of the
Schlanger doesn’t flinch from identifying internal factors that contributed to
CEVA’s poor earnings. He brings an understanding of the business and investment
side to the company’s recovery efforts, having served as president and CEO of
ARCO Chemical and run many global businesses. Schlanger is also a principal of
Cherry Hill Chemical Investments, a provider of capital and management services
to the chemical and allied industries. He has been with Apollo for 15 years in
executive and board roles.
CEVA, like many 3PLs, has been hammered by the global economy, especially the
European credit crisis. “Europe continues to decline,” Schlanger said. “It’s
been a problem for us and others.”
Amid economic uncertainty and weak consumer demand, shippers are shifting from
air freight to ocean, lowering profits for many forwarders. CEVA, which derives
its revenue from contract logistics and freight management, was hit hard by the
modal shift. Adjusted EDIBTA for freight management declined 17.7 percent for
2012 compared to 2011, while adjusted EDBITA for contract logistics fell 24.4
Internal cost structures, contract performance and a legacy dating from CEVA’s
founding have contributed to the company’s woes. An enterprise-wide effort is
under way to reduce overhead costs and improve contract performance. Some 1,500
jobs Schlanger described as not creating value have been eliminated, with 300
more to follow.
CEVA also is reviewing logistics contracts, shedding or renegotiating
underperformers. “We have a way to go, but we’re well down the path,” Schlanger
The company’s challenge dates to 2006, when Apollo bought CEVA, then the
contract logistics division of TNT NV, for $1.9 billion. The following year,
Apollo acquired EGL, a Houston-based freight management company for $2.2
billion, and incorporated it into the CEVA brand.
TNT’s business was heavily tied to the sluggish, at best, southern European
automotive sector. Moody’s Investors Service forecasts western European light
vehicle demand will contract 3 percent this year because of weaker markets in
southern Europe, particularly Italy.
EGL had a huge business in computer imports from Asia. The shift in consumer
demand from computers to mobile devices forced 3PLs to reconfigure their supply
chains, a formidable challenge. “Our legacy businesses were over-weighted in
certain elements of industry that frankly are not great performers at the
moment,” Schlanger said.
His strategic vision would take CEVA beyond its legacy as a hybrid of TNT-EGL.
Building on existing global scale and world-class capabilities, Schlanger
envisions a company the market recognizes as an end-to-end supply chain services
provider, with a value proposition covering the breadth of 3PL services and
extends the length of the supply chain.
“We want to show our customers how to save money end-to-end, not just with
freight management or contract logistics,” he said.
CEVA is expanding its Supply Chain Solutions group, an internal organization
launched in 2011 to provide global customers with end-to-end solutions. General
Motors was an early user of the service, which can uncover savings of 5 to 15
percent through process improvements. “We have great control tower operations
around the world,” Schlanger said.
With the recapitalization plan in place, Schlanger knows ultimate responsibility
for CEVA rests on his shoulders. “It is now in the hands of CEVA management to
demonstrate the full potential of the company,” he said.
Veteran 3PL industry analyst Dick Armstrong, president of Armstrong &
Associates, isn’t convinced the Apollo-CEVA pairing bodes well for CEVA’s
long-term health. Not enough money is being channeled back into CEVA to allow it
to remain competitive, he said. Operational imperatives may be taking a backseat
to other private equity concerns.
As a result, CEVA isn’t in control of its own destiny. “CEVA doesn’t have the
money they need to operate and innovate,” Armstrong said.
Apollo declined to comment for this report.
CEVA remains a great company despite its challenges, with the resources and
capabilities to emerge stronger. Armstrong’s rankings of top global 3PLs
describes CEVA as having excellent logistics operations, very good capabilities
in value-added support activities and a strong software infrastructure. CEVA’s
main vertical industries include automotive, consumer/retail technology,
industrial and energy.
Globally, revenue is derived mainly from the Americas, Asia-Pacific and northern
Europe. Key customers include Andersen Windows, Daimler, Eaton, Fiat, Ford,
General Motors, Hewlett-Packard, Michelin, Mitsubishi Motors, Petro-Canada,
Renault and Sears.
Armstrong would like to see more midmarket companies among CEVA’s clients. They
tend to be more profitable than the Fortune 100 companies that make up the bulk
of CEVA’s business. “Especially if you are a tactical provider,” he said, “the
Fortune 100 companies can really squeeze you on the margins.”
Source: Pactrans Air & Sea, Inc.
About Pactrans Air & Sea, Inc.
Headquarted in Bensenville, IL, and doing business for
nearly 30 years, Pactrans Air & Sea has established itself as one
of the world's leading international logistics companies. Providing a
wide range of services, including: import / export air and ocean
freight, warehousing and distribution, local trucking, trade shows and
product trading / sourcing. Read more about us for more information. We are: CNS (an IATA Co), FMC, NVOCC, MBE and most recently WBE certified organization.