Transportation And Logistics Deals Eyed Closely

Buyout firms are expressing more interest in transportation and logistics companies as they look to get a toehold in an industry at the forefront of the nascent economic recovery, according to buyout executives, bankers and attorneys.

The trend could also present attractive exit opportunities for those firms that bought in recent years, at the bottom of the market.

“People are looking for deals and this is a segment that will benefit mightily from the economic recovery,” Paul Jones, a managing director at the St. Petersburg, Fla., investment bank Raymond James & Associates, told Buyouts.

After more than two years of not doing a new deal in transportation, Navigation Capital Partners since August completed two add-on acquisitions for Brown Trucking Co., a Lithonia, Ga.-based trucking company that it bought in 2008. David Panton, a partner at the Atlanta-based firm, said bankers call him once or twice a week pitching new deals in the sector, compared to one every two months or so last year. Bankers are also asking if Navigation Capital is interested in selling Brown, but it is not interested in doing so at this time, Panton said. “In a few short months, we’ve moved from a drought to a flood” of deal opportunities.

Quarterly control-stake deals in transportation and logistics peaked at 58 at the height of the buyout boom, in the fourth quarter of 2007. They then trended downward before bottoming out with 12 such deals in the third quarter of 2009, according to Thomson Reuters. Since then, sponsors have made an average of 24 majority investments per quarter, not including seven deals struck so far this quarter.

The heightened interest from buyout firms follows a crippling recession that’s left many companies starved for outside capital, sources said. Since the fourth quarter of 2007, for example, at least 5,800 trucking fleets went out of business, according to Nashville-based investment bank Avondale Partners. Meanwhile, shipping volumes have rebounded almost to peak 2005 levels, according to the American Trucking Associations, an industry trade group. “We are seeing private equity race into the area where freight rates are rapidly increasing, acquisition multiples are still conservative and many companies are out of the game,” said Jim Hill, a Cleveland-based executive chairman of the law firm Benesch Friedlander Coplan & Aronoff LLP.

Most buyout shops are after companies without hard assets, such as a fleet of trucks, which are seen as risky, sources said. Targets such as brokers that arrange freight travel between companies tend to have more free cash flow that can be used to pay down debt quickly.

Indeed, buyout shops can buy asset-light logistics companies at attractive prices, bolster them with additional capital and management resources, and expand them by buying other logistics companies, said Andy Ahern, CEO of Ahern & Associates, a Phoenix, Ariz.-based transportation consulting firm currently working on three sponsor-backed deals. “They’ll gobble up the little freight brokers,” Ahern said. “We have three private equity firms right now who want the same thing: They want $100 million-plus of revenue, they want at least $5 million to $20 million of EBITDA, and they want to buy it yesterday.”

In July, for example, Greenbriar Equity Group LLC, a Rye, N.Y.-based firm that focuses on transportation deals, agreed to make its first new investment since 2007. The firm is backing Pittsburgh-based third-party logistics provider GENCO Distribution System Inc.’s October 22 acquisition of ATC Technology Corp., a Downers Grove, Ill.-based supply chain manager, in a deal valued at $512.6 million. Greenbriar Equity followed that up with another deal last month, agreeing to take Dynamex Inc., a Dallas-based provider of same-day delivery and logistics services, private for $210 million.

As Navigation Capital’s investment in Brown Trucking suggests, buyout firms aren’t totally avoiding companies that own assets like ships and trucks. Platinum Equity LLC, to cite another example, agreed on Oct. 18 to buy American Commercial Lines Inc., a Jeffersonville, Ind.-based company that manufactures barges and provides barge transportation for goods like steel and salt along the Mississippi River system and other U.S. waterways, in a deal valued at $777 million.

Platinum, known for digging into difficult, asset-rich deals, likely sees downside protection in American Commercial’s barging assets, said Ken Novotny, co-head of transportation and logistics banking at Memphis, Tenn.-based investment bank Morgan Keegan & Co. But the firm is likely also betting on an economic rebound that would return the company to pre-recession EBITDA levels, he said.

Wynnchurch Capital is an example of a firm that looks like it could put some transportation companies on the market in the near future. In 2006, the Rosemont, Ill.-based firm bought Calyx Transportation Group Inc., a Concord, Ontario-based company that provides transportation and logistics services throughout North America, in a deal valued at $161 million. According to Wynnchurch’s Web site, the company has doubled in size over the past five years and “has a unique blend of asset, asset-light and non-asset based services.”

In the same year, Wynnchurch bought what is now called 4Front Engineered Solutions Inc., a Carrollton, Texas-based company that makes truck and rail loading dock equipment, in a deal valued at $43.5 million. Wynnchurch has since sponsored a dividend recapitalization of 4Front Engineered that has returned all of the firm’s original investment, John Hatherly, managing partner at the firm, told Buyouts in an e-mail. He added that the firm has “no plans to sell Calyx at this stage.”