Deutsche Bahn has shortlisted a handful of banks to make further pitches for the mandate to sell logistics arm DB Schenker, which could be valued at more than EUR 15bn, according to five sources familiar with the matter.

The German state-owned rail operator has invited Barclays, Deutsche Bank, Goldman Sachs and Morgan Stanley to a beauty parade after hearing an initial round of pitches earlier in February, three of the sources said. Bank of America has also been selected to participate in the bake-off, two of them added.

Deutsche Bahn sent out requests for proposals to a wide group of banks, three of the sources said. Second round pitches for the role are set to take place imminently, said one of the sources.

The company is expected to eventually appoint a lead sale adviser, with one or two other banks acting in a supporting capacity, according to one of the sources.

In the first half of 2022, DB Schenker generated EUR 1.2bn in operating profit, the “best mid-year EBIT” in the company's 150-year history, Deutsche Bahn said in a December statement on its decision to examine a sale of Schenker.

For 2021, DB Schenker reported adjusted EBITDA of EUR 1.85bn on EUR 23.4bn in revenue, up from EUR 1.3bn adjusted EBITDA and EUR 17.67bn revenue in FY20, according to Deutsche Bahn’s annual report. The railroad operator attributed DB Schenker’s revenue growth largely to the development of freight rates.  

The company could be valued in the region of EUR 15bn-EUR 20bn, one of the sources and a sixth source familiar said. However, the EV is likely to fall at the lower end of the range as profitability returns to normal levels following bumper pandemic years, one of them added. 

DB Schenker is expected to attract the interest of financial and strategic suitors, with the former having to form consortia given the large size of a potential buyout, one of the sources said, who added that some private equity consortia were already in the process of being formed.  

Carlyle [NASDAQ:CG] and CVC are among sponsors that have held talks regarding a joint bid, while Advent, Bain and Blackstone [NYSE:BX] could also look to work together, as reported.

Private equity buyers are likely to look into separating and carving out certain parts of the business, such as warehousing, to increase the shareholder value – a move considered to be more accessible for a private equity firm than a strategic player, a seventh source familiar said.

However, the business' cashflow might prove to be a struggle for a sponsor looking to raise leverage, especially in the current financing environment, one of the sources said. Unions such as the German Railway and Transport Union (EVG) are also likely to oppose the sale of DB Schenker, as reported.

Strategic buyers tipped to be interested in DB Schenker include Deutsche Post’s [ETR:DPW] logistics services subsidiary DHL as well as logistics players DSV [CPH:DSV], Kühne+Nagel [SWX:KNIN] and Maersk [CPH:MAERSK-A], according to local press reports. 

Deutsche Bahn on 15 December announced that its supervisory board has decided to prepare for the sale of up to 100% of its shares in DB Schenker. Proceeds from the sale will be put toward reducing the company's debt. In the medium term, DB Schenker requires larger financial resources and more independence to make acquisitions in order to retain and enhance its market position. For this reason, a sale could open up new opportunities for DB Schenker in terms of growth and development, the statement said.

With around 76,100 employees at over 1,850 locations in more than 130 countries, DB Schenker is one of the leading logistics providers, according to Deutsche Bahn. The company operates land, air and ocean transport services and offers comprehensive solutions for logistics and global supply chain management from a single source. 

Deutsche Bahn, DB Schenker, Deutsche Bank, Goldman Sachs, BAML and Morgan Stanley declined to comment. Barclays did not respond to requests for comment.