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,
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,
As Navigation Capital’s investment in Brown Trucking suggests, buyout firms aren’t totally avoiding companies that own assets like ships and trucks.
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.
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.”