Questor Ships GeoLogistics –

When William E. Simon & Sons and Oaktree Capital Management originally started the International Logistics (IL) platform in 1996, it appeared the investor group was getting involved in a “can’t miss.” The contract logistics industry was projected to balloon amid strong economic growth, a new era of globalization was supposed to fit flush with IL’s international presence and an acquisition strategy to diversify into all transportation modes should have given the outfit a primary role in the industry’s consolidation plans. But the freight forwarder ran into a number of problems, and the “can’t miss” quickly spiraled to a near miss.

The company changed its name to GeoLogistics soon after the Simon and Oaktree investment and went on to carry out a rapid acquisition spree, in which it rolled The Bekins Co., LEP North America and Matrix International, among other businesses into the platform. But by 2001, the company was losing roughly $22 million, alongside a debt load of roughly $90 million. If the status quo remained, bankruptcy would not have been too far off.

Enter Questor Management. Michael Madden, who was a principal at Questor at the time, had worked with Peter Simon, of William E. Simon & Sons, at Kidder Peabody & Co., and had been monitoring the company since around 2000. The firm invested $67.5 million into the company, grabbing a significant stake in the preferred equity.

“The company was cash challenged in a significant way,” Robert Denious, a managing director at Questor told Buyouts. “When we invested in the business it was losing a lot of money, but underneath the financial problems, we could see there were some tremendous areas of financial strength.”

Specifically, the incoming investors were attracted to GeoLogistics’ core business of freight forwarding, and the company’s strong presence in Asia was a clincher for Questor. However, cleaning up the mess caused by expanding into warehousing and third-party logistics could not be characterized as easy.

Questor brought in a new management, led by CEO and Chairman William Flynn, sold or monetized a number of its warehouses, revamped the entire IT system, trimmed its overhead, centered the company’s focus on its core freight forwarding business and infused more capital into its Asian operations to help fuel growth there.

Questor Director Kevin Prokop said, “The company wasn’t totally sick when we took over. The freight forwarding unit and its operations in Asia were really the crown jewel of the company. Those businesses were profitable, but constrained with regards to working capital.”

Starting from a loss of $22 million, GeoLogistics was able to break even one year after Questor assumed control, and from there posted EBITDA of $18 million and $32 million in successive years following, and this year is on track to post $47 million in EBITDA.

Michael Madden, meanwhile, who has since left Questor to launch Centurion Capital Partners, called the investment “a poster child for turnaround investing.” He described, “It was one of the most complicated deals I’ve been involved in. When we came in, the company operated in 62 countries, had 25 separate bank agreements and a culture that really didn’t allow for sharing between the different groups. When we arrived we couldn’t even be sure of the company’s true revenues or costs.”

But once the company’s prospects began to turnaround, Questor retained Bear Stearns and Citibank to run a dual-track process in which Geologistics filed to go public, and at the same time was shopped to prospective suitors. In January, Geologistics filed to raise $175 million through a proposed IPO on the Nasdaq, but ultimately, a bid from Kuwait-based freight forwarder PWC Logistics proved to be the most appealing exit for the investors. The company agreed to pay $454 million for Geologistics.

“At the end of the day, this option returned the most value back to the shareholders, and from the company’s point of view, provides a very good fit for the business,” Denious noted.

Questor would not comment on returns from the investment, although Madden indicated the sale would likely return well over twice their investment.