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Silk Logistics Holdings’ (ASX: SLH) Executive Directors, Brendan Boyd and John Sood, risked everything in a management buyout of the business in 2014.

At the time, Boyd was in his fifties and mortgage free. “John and I had to mortgage our houses, raise debt and tell our wives of our plan. It was a significant risk because Silk had lost about $5 million in 2013 and was struggling.”

Boyd and Sood knew they could turn Silk around. The company’s heritage went back more than a century through Hoffman Transport and later Kagan Logistics. A private equity firm had bought these and other logistics businesses to form Silk Group in 2008.

With the support of private investors, Boyd and Sood acquired Silk. But within months of completing the MBO, Silk was perilously close to running out of cash. Wages and rent were due. “Our partners said, ‘tell us what you need to fix the business,’ said Boyd. “We know you will find a way.”

By Christmas of 2014, Silk was profitable. The company repaid its debt facility and soon received the first of several offers to be bought out. 

By 2016, Silk’s private investors wanted to sell their shares and take profits. Capital subsequently invested by Tor Investment Management, a Hong Kong-based fund manager, was used to buy out those private investors, leaving Boyd and Sood as the sole ordinary equity investors in Silk. 

In 2018, Tor’s mezzanine debt converted to preferred equity and Tor invested further to allow for the acquisitions of port logistics and distribution businesses in Sydney, Brisbane and Melbourne.

The next step was an Initial Public Offering (IPO) on the ASX. “From day one, we’d talked about Silk listing on the ASX as part of our five-year strategic plan,” says Boyd. “Private equity typically has a horizon of about five years to exit, so a 2021 listing made sense.”

“Silk had an option to secure more debt finance (or private equity) to buy Tor’s shareholding and provide capital for future growth” says Boyd. “But John and I felt that would have hamstrung Silk’s future growth prospects. An ASX listing made more sense for the business at that stage.”

In July 2021, Silk raised $70 million through an ASX listing, capitalising it at $151 million. Today, Silk is worth $169 million.[i] In FY22 Silk had revenue of $394.7 million, ahead of prospectus guidance[ii] (the business turned over about $73 million when Boyd and Sood bought it in 2014). Underlying earnings were $31 million in FY22.[iii]

Silk is growing quickly. It completed a warehouse acquisition in FY22, and says it has a “strong pipeline of acquisition targets in FY23 and beyond”. The nationwide business currently has 47 operational sites encompassing warehouse sites[iv] and  port logistics hubs – each of which contributes to its premium “port-to-door” logistics strategy.

“Silk has averaged about 20% compound annual growth since we bought it,” says Boyd. “We see opportunities for long-term growth by acquiring and consolidating smaller logistics businesses in what is a fragmented industry. The ASX listing, and strong support from its debt financiers, gives Silk scope to fund those acquisitions. It also lifts Silk’s profile.”

Challenging market

Boyd and Sood completed 135 investor meetings on Zoom in the lead-up to the IPO. “It wasn’t easy sitting in our brokers’ offices in Sydney and Melbourne and talking on screens non-stop for three weeks,” he says. “IPOs are a lot of work.”

The pandemic was hard enough for the logistics industry. Having an IPO added to Silk’s challenge. “There’s a view that the pandemic has been a tailwind for logistics companies,” says Boyd. “Certainly, our warehouse utilisation rate is up as customers hold more inventory. But COVID-19 also led to higher staff absenteeism and people, container and pallet shortages. Inconsistent shipping schedules  were another factor.”

Soon after listing, Silk was embroiled in a super-spreading COVID-19 event after 16 employees caught the virus from a customer funded pizza lunch at its Erskine Park warehouse in Western Sydney. Two employees went to hospital. The news made headlines.

Boyd says COVID-19 uncertainty – and general share market volatility – led to churn among its retail shareholders. “We saw some retail investors who bought in at the IPO sell small parcels of their shares. General negativity about supply-chain issues, and shipping and wage costs, might have encouraged the selling. Retail shareholders are important, but they can add to share-price volatility after you list.”

In hindsight, Silk should have allocated more IPO stock to institutions, says Boyd. The split between institutional and retail investors was about 55/45. “The institutions that bought in through the IPO have been very loyal. They can see how Silk is performing and where it is headed. We have built a reputation as a strong growth-focused business.”

Silk’s $2-issued shares hit $2.55 in early April 2022. But they have since fallen in line with broader share market weakness, trading at $2.25 in mid-October 2022. 

 “The institutions that bought in through the IPO have been very loyal. They can see how Silk is performing and where it is headed. We have built a reputation as a strong growth-focused business.

Brendan Boyd,
Executive Director at Silk Logistics Holdings'

Investor relations

Like many microcap IPOs, Silk’s main investor-relations challenges are increasing its share liquidity and valuation in line with listed peers. Boyd and Sood each own about 14% of Silk. With Tor’s 19% and a handful of institutions on the share register, daily share turnover is modest.

“We’ve had some good interest from small-cap fund managers, particularly after our FY22 results,” says Boyd. “The challenge is having enough stock liquidity for them to initiate a decent position in Silk. Lifting liquidity is something we are working on.”

Silk is currently researched by Morgans, and Shaw and Partners, the joint lead managers and underwriters to its IPO. 

The lifting of all escrow provisions this year could aid Silk’s liquidity. About 40 million shares were escrowed in two tranches: 30.6 million of those shares were free to be sold in August 2022 after the company reported its FY22 result.

The end of escrow provisions can be a trigger for pre-IPO investors to sell their shares and bring new investors to the register. Much depends on post-IPO performance.

Transport sector primed for more IPOs

Boyd expects more emerging transport and logistics companies to list on ASX. “I know a couple that are considering following Silk’s listing pathway. When asked, my counsel is always the same: make sure you have sufficient size and scale before you list.”

Boyd still thinks of Silk like a family business. “Some businesses we expect to acquire in the next few years are likely to be family-owned logistics companies with succession issues. They’re a good fit with our organisational culture.”

The ASX listing could help extend Silk in other ways. In October 2022, Silk announced an employee share plan. “We’re pleased to give our employees an opportunity to become part-owners of Silk and share in its expected growth,” says Boyd. 

He and Sood recently presented Silk’s 1+1 strategy to its Board. The goal is $1 billion of revenue and a $1 billion market capitalisation within five years. “We’ve got big plans for Silk and a great team to help us get there,” says Boyd. “Silk has always had a very disciplined approach to long-term planning and building a premium service offering.”

Silk has come a long way from the loss-making business that came close to running out of cash in 2014. “We’re confident that if Silk continues to deliver, the message will get out to investors,” says Boyd. “Through an ASX listing, we’re positioned to raise more capital to fund growth. We can grow rapidly, but responsibly, through acquisitions and attract more shareholders over time.”

To learn more about Silk Logistics Holdings, visit www.silklogisticsholdings.com.au


[i] At 3 October 2022
[ii] FY22 revenue was 16.2% ahead of prospectus guidance
[iii] Underling earnings in Earnings Before Interest and Tax (EBIT).
[iv] Including five managed warehouse sites. Numbers at end-FY22.

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