While Correios Privatization Drags On, Sequoia Logística Seeks R$1+billion IPO

RIO DE JANEIRO, BRAZIL – While the Correios’ privatization drama drags on, a company that was born and grew in the last decade alongside the state-owned company is aware the potential growth in online sales may crown its trajectory with its debut in the stock market: Sequoia Logística plans to announce the success of its initial public offering (IPO) in the B3 on Monday, October 5th.

The company, the largest independent logistics operator in the country, with a 16 percent market share, is trying to launch an IPO with a narrative that refers to the one adopted by Boa Vista Services, which sold itself to investors as a valuable data intelligence company in the new economy. The result: the demand exceeded the offer five fold.

It was an argument that seemed to convince major foreign investors, something that is also occurring with the logistics company, according to EXAME news magazine.

Sequoia is selling itself as a company that conducts logistics management “door to door” using its own technology, claiming it is positioned like very few others to capitalize on the explosion of online sales in Brazil, a trend that the pandemic has accelerated. This includes the strategic – and profitable – order fulfillment segment, which is the management of product storage that will be shipped to consumers.

The state-owned postal service Correios, on the other hand, is essentially a delivery company, whose main asset is that it reaches 95 percent of the country’s municipalities. Correios only began its order fulfillment activity in 2016.

Sequoia can raise approximately R$1.1 billion if the offer proceeds at R$16 per share, within the target band of R$14.25 to R$17.75.

In this case, there would be a primary offer of R$450 million, in which the resources would flow into the company’s cash, and a secondary offer of almost R$640 million, with funds reverted to shareholders who sell their shares.

These are figures that do not consider supplementary lots and additional shares that may be sold by shareholders should there be demand. In addition to the two placements, Sequoia’s IPO may generate over R$1.5 billion.

The current main shareholder is the American private equity firm Warburg Pincus, which joined Sequoia in 2014, and currently holds 70 percent of shares but could reduce this to something close to 20 percent, depending on the sale of supplementary lots or additional shares in the offer.

The offer was met with resistance by some analysts, who point out that it is mostly secondary: that is, it acts more as an exit door and reduction of current shareholders’ holdings, rather than an expansion of the company’s growth capacity.

More flexible than Correios

The company was co-founded in 2010 by one of the most knowledgeable e-commerce logistics executives in the country, Armando Marchesan Neto, who remains as CEO and controlling shareholder along with Warburg Pincus and FRAM Capital management.

Marchesan was operations director of one of the first major sales websites in the country, Submarino, between 2002 and 2006. Later, upon the merger with Americanas.com, he held the same position in the resulting company B2W until 2009. The other founder, Décio Alves, also a B2W graduate, remains a minority shareholder, but is currently the director of Enjoei.

Sequoia stresses, as its differential, its having nine proprietary operating systems that enable it to quickly grow its business with no major investments, profiting from the Internet sales boom caused by the pandemic. The company reaches around 3,400 of Brazil’s 5,570 municipalities, a territorial reach that only loses to the Correios among companies exclusively engaged in the service.

There were 30 million deliveries last year, resulting in an average annual gross revenue increase of 35 percent between 2017 and 2019. In the first half of 2020, the rate of expansion accelerated to 61 percent: revenues reached R$778 million in 12 months through June, with an operating cash generation of R$77 million in the same period. The client list includes eight of the ten largest online sales companies in Brazil, including giants such as Mercado Livre and Via Varejo.

Its own technology platform also enables Sequoia to be a flexibly structured logistics operator – only two percent of the approximately 9,700 light vehicles, SUVs and trucks used for deliveries are owned by the company.

The company employs approximately 5,000 workers, in addition to a flexible staff network – there are 5,600 outsourced drivers, for instance. This workforce contrasts with the approximately 95,000 employees on the Correios payroll.

Window closed?

Whether or not these arguments were deemed convincing by investors is something that will most likely only be known on Monday evening, with the market announcement and the price set for the debut. During the week, two companies that had decided to go public had distinct outcomes, bringing uncertainties to the market.

Compass, the Cosan energy and gas company, withdrew its share offering on Monday, September 28th, alleging adverse market conditions; it had intended to raise R$4,4 billion. One day later, however, Boa Vista Services raised R$2,2 billion.

Source: Exame