Transportation & Logistics

Transcription

1 Transportation & Logistics STRATEGIC MARKET INSIGHTS 2018 REPORT

2 G2 Insights Private Equity Environment Continued Strength Across T&L The M&A market in the sector remains highly active, reaching over $6.9B of total disclosed deal value in A strong economy has led to volume, pricing, and profitability growth for companies across the sector, supporting high valuation multiples for topperforming companies. As depicted in the graph below, private equity firms aggressively pursued T&L platform investments during 2018, closing 39 such transactions compared to an annual average of 21 between 2010 and Investors are attracted by the sector s strong cash flow generation, customer diversity, and industry tailwinds. Private equity firms utilize diverse approaches to the sector, seeking to add value to their investments by providing operational expertise, building out or filling in a management team, or assisting with the M&A process. Some firms prefer to be heavily involved with day-to-day operations, while others take a hands-off approach. The companies that garner the most interest from investors are those with a unique story to tell, whether that comes in the form of specialty service capabilities, a unique operational or geographic footprint, or a transformative growth strategy. Platform Investment Count Annual Platform Investments Since 2010 in T&L Average = 21 transaction Interview with John Anderson, Operating Partner at Greenbriar G2 would like to express gratitude to Mr. Anderson for sharing his time and insights into private equity s perspective on the T&L sector. John Anderson has over 30 years of experience in the transportation and logistics sector as both an operator and an investor. Since 2011, he has served as an operating partner at Greenbriar Equity Group, a T&L-focused private equity firm based in New York City. Prior to joining Greenbriar, he founded and co-led the transportation and logistics investment practice at Fenway Partners. He previously served as Executive Vice President at two railroads, Burlington Northern Santa Fe and CSX Transportation, and as a Partner at McKinsey & Co. Source: CapitalIQ 2

3 G2 Insights John Anderson Interview What changes have you observed in the T&L market over the past two years? The past two years represent a continuation of a decade-long trend of consistent recovery across markets in general. Private equity is growing, and T&L has become a key market segment for leveraged buyouts with the past five to six years representing the best market for private equity backed T&L companies that I have seen in my career. What is your view of valuation multiples in the sector? The strong performance of T&L companies across a robust economy has created a seller s market. High valuations and robust demand have forced buyers to stretch beyond typical thresholds to win deals. But while prices may seem expensive, the reality is that earnings forecasts, adjusted for downside risks, dictate enterprise value. Once that value has been determined, the implied multiple may appear high or low relative to other periods but is not strictly relevant. Current economic conditions, earnings potential and competitive landscape will all impact the perceived market value. How do you think about the timing of a possible downturn in the market? Attempting to time the next recession can lead investors to remain on the sidelines and miss out on good times. If a firm is consistently focused on identifying and backing companies with strong fundamentals, hindsight may show that it overpaid, but this is based on a forecast that was just too optimistic. For investors focused on generating returns on the buy and sell, timing is a more important consideration. However, Greenbriar s approach is to build value by bringing expertise to its investments via our deep industry knowledge and M&A expertise, so timing is less of a concern. We do not underwrite to multiple accretion, even when we believe we are getting an asset for a very attractive price. Instead, we focus on what the business can become in the future and how can we assist in getting it there. How do you approach add-on acquisition opportunities? Private equity firms generate strong returns for investors when they add value over the hold period by growing earnings. M&A can be a highly effective tool to generate growth and we have deep expertise in helping our companies grow through M&A. We focus on add-ons that either lower our overall blended multiple, add new, strategic capabilities or open up new market opportunities. For all add-on acquisitions, we get our management teams involved early to ensure full support of the decision and to evaluate cultural compatibility. What would you recommend that business owners do to attract PE investment? Three key topics for companies seeking private equity investment to consider are earnings growth, operating leverage, and management depth. First, the single most important attribute is to manage the company to a good track record of earnings growth which validates the strength of the business model. Second, lowering the overall operating leverage of the company into a more variable structure improves scalability and increases levers a private equity group can pull in a down market. Finally, Greenbriar places significant value on strong management teams and considers continuity important. Companies should not build a management team in one year to prepare for a sale; it may be better to leave a gap that can be filled post-closing than rush to hire the wrong person. 3

4 Select Transaction Highlight a portfolio company of has been recapitalized by G2 Capital Advisors, LLC served as the exclusive advisor to LEGACY During 2018, G2 advised LEGACY Supply Chain Holdings, Inc. on its sale to EOS partners. The multiyear engagement included restructuring advisory, interim management, divestiture of underperforming assets, an operational turnaround, and ultimately a sale. CLIENT: LEGACY Supply Chain Holdings, Inc. ("LEGACY" or the "Company ) provides outsourced supply chain solutions, including omni-channel and e- commerce fulfillment, serving the North American market. Service offerings include value-added warehousing, brokerage, and transportation, serving end markets including retail, industrial, and consumables. SITUATION: In July 2016, ownership of LEGACY was transferred to certain affiliates and managed funds of THL Credit Advisors LLC ("THL"). During THL s ownership, the Company identified and executed on multiple growth initiatives by leveraging existing capability set, infrastructure and customer relationships. Additionally, the Company sourced meaningful new business, drove top and bottom line growth and identified and entered new critical high growth end-markets. ENGAGEMENT: G2 Capital Advisors, LLC ("G2") served as the exclusive sell-side advisor to LEGACY, leading a robust, highly tailored process, which resulted in consummating a transaction with EOS Partners. OUTCOME: The transaction was successfully completed through a sale to Eos Partners. Mike Glodziak, President and CEO of LEGACY, shared, "We thank G2 Capital Advisors for working alongside us for the past 2+ years. The partnership with G2 and THL was essential to our long-term growth strategy. As a result, LEGACY is well positioned to continue to serve our long-standing client base, expand our footprint in ecommerce fulfillment and omni-channel logistics, and establish leadership position in new and emerging consumer logistics markets. "We're very proud of the improvements that occurred at LEGACY while we were in control of the Company," said Chris Flynn, CEO of THL Credit. "G2 was instrumental in helping to manage the business at a critical inflection point and find a proper buyer when the Company was in a position to be sold." 4

5 Transactions and Multiples During the fourth quarter of 2018, transaction activity by private equity firms and PE-backed strategics supported a robust M&A environment in the transportation and logistics sectors. Greenbriar Equity Group invests in Spireon (10/11/2018) Greenbriar Equity, a New York-based private investment firm focused on the global transportation and logistics industries, became the primary investor to Spireon, a leading provider of telematics solutions to the automotive and commercial transportation sectors. USA Truck, Inc. acquires Davis Transfer Company (10/18/2018) USA Truck, a provider of asset-based truckload and brokerage capacity solutions, acquired Davis Transfer Company, a high-service regional carrier with a fleet of 180 tractors and 850 trailers. Odyssey Logistics acquires AFF Global Logistics (10/18/2018) Odyssey Logistics & Technology Corporation, a portfolio company of The Jordan Company, has agreed to acquire AFF Global Logistics, a global third-party logistics provider and freight forwarder, with over 35 global locations and 600 employees. The acquisition will deepen Odyssey s capabilities with load consolidation expertise serving international offshore markets. Canadian National acquires the TransX Group of Companies (10/30/18) Canadian National, Canada s largest freight railway, acquired Canadian trucking company TransX. TransX is one of Canada s largest carriers, with 1,500 trucks, 4,000 trailers, more than 1,000 intermodal containers and dedicated chassis pools and 12 terminals. With this acquisition, Canadian National seeks to enhance its intermodal service, especially in the temperature-controlled market. MNX acquires Express Division of Network Global Logistics (12/06/2018) MNX Global Logistics, a portfolio company of Audax Private Equity and provider of expedited transportation and logistics services, acquired the express division of Network Global Logistics (NGL), an integrated specialty logistics provider that focuses on time-, temperature-, and security-sensitive freight. Greenbriar Equity Group invests in BDP International (12/06/2018) Greenbriar Equity Group has invested in BDP International, a provider of freight forwarding services to shippers in the petrochemical, health care and life sciences, oil and gas, manufacturing, retail and consumer goods sectors with 148 offices in 34 countries. Gryphon Investors invests in Nolan Transportation Group (12/18/2018) Gryphon Investors, a San Francisco-based middle market private equity firm, acquired a majority stake in Nolan Transportation Group, a fast-growing truckload broker. Nolan will operate as a sister company to Transportation Insight, creating a combined entity with roughly $3B of revenue per year and will be among the largest independent freight brokerages and enterprise logistics providers in the U.S. Transportation and Logistics Overview The table below references valuation metrics for select public companies in each of the industry s key segments: logistics, marine, rail services, and trucking. Mean public trading multiples range from 8.6x LTM EBITDA for trucking companies to 11.3x LTM EBITDA for logistics companies. The higher multiples of asset-light segments of T&L reflect a more scalable business model which offers some downside protection in the event of a slowdown in economic activity. Mean LTM LTM # of Selected Sector Enterprise Mean Revenue Mean EBITDA EV / EV / Companies Value ($MM) Growth Growth Revenue EBITDA Logistics 19 $15,423 6% 20% 1.0x 11.3x Marine 16 $5,704 7% 38% 2.6x 10.2x Rail Services 10 $40,740 8% 14% 4.0x 10.4x Trucking 17 $3,400 7% 16% 1.1x 8.6x Note: LTM multiples as of December Source: S&P Capital IQ, Logistics Management 5

6 Selected Ongoing G2 Projects G2 has a robust backlog of mandates ranging across its sell-side, buy-side, capital markets, and restructuring service offerings. Project Hawk Sell-Side Multi-Stop Truckload Service Provider Project Hawk G2 is currently advising a multistop truckload provider for service-sensitive and expedited loads on a recapitalization of the business. The company provides both capacity-based partial truckload and expedited solutions and asset-light brokerage and intermodal services. Project Buckeye Sell-Side Specialized Air Freight Forwarder Project Buckeye G2 is currently advising a leading provider of expedited international air freight forwarding services on a recapitalization of the business. The company s end-to-end service offering includes pickup, freight consolidation, customs management, and tracking. Project Jazz Buy-Side Global Expedited Logistics Provider Project Jazz G2 is currently advising a leading provider of time-critical and security-sensitive logistics services on a buy-side engagement. The company is seeking acquisition opportunities in the time-critical healthcare logistics market, with a focus on radiopharmaceutical, cold chain, and biosimilar capabilities. Project Bayou Sell-Side Waste Transportation Solutions Provider Project Bayou G2 is currently advising a provider of waste disposal transportation and logistics services on a sale of the business. The company provides diversified waste handling solutions in the Southeast and Midwest. 6

7 Market Indicators Market Index Trends The Transportation and Logistics sector experienced a slight pull back in performance during 2018 due to escalating trade tensions and concerns around a slowdown in global growth. 150% 130% 110% 90% Index 70% 50% 30% 10% (10%) S&P 500 Transportation (Industry Group) S&P 500 Last Five Years EV / EBITDA Trend by Industry Data sourced from S&P Capital IQ on December 31, 2018 During 2018, concerns that the freight market may have peaked led to a contraction in EV / EBITDA multiple relative to the third quarter. 15.0x 10.0x EV / EBITDA 5. 0x 0. 0x S&P 500 Logistics Marine Rail Services Trucking Data sourced from S&P Capital IQ on December 31,

8 G2 Overview Ron Lentz, Managing Director G2 Capital Advisors industry Practice Leader, Ron Lentz, brings 25+ years of C-level leadership and operating experience to the practice group. Company Title Role CEO Restructured operations of international freight forwarder and acquired 11 companies in 18 months before selling the parent at 4.5x premium. EVP Doubled the size of company sales and EBITDA in 18 months before selling at a 2.5x premium. COO Restructured and recapitalized the company, before selling for $400 million. COO Restructured platform company for a private equity group before selling for $658 million representing a 6x return on initial investment. CEO Co-founded the business in 2000, building the company from start-up to $150 million in revenues in 18 months then sold to private equity firm in EVP Built Ryder s 3PL division from $100 million revenues in 1988 to $2.4 billion in Ron Lentz Practice Leader G2 Overview Christopher Casteleyn, Vice President G2 Capital Advisors industry Vice President, Christopher Casteleyn, brings 13+ years of experience in finance, specializing in providing advisory services for merger, acquisition, and divestiture transactions as well as strategic assessments. Christopher has significant experience executing cross-border and private company transactions within the practice group. Company Antares International Partners, Inc. Title Role VP Involved in all aspects of M&A and divestiture processes including sourcing, positioning, and negotiating transactions. Executed over $1B in total transaction value over 5 years. Fin Specialized in a variety of finance and technical accounting roles including Strategy, Operational Finance, SEC Reporting, Internal Audit, Sarbanes Oxley Compliance, Financial Planning and Analysis and Treasury / Cash Management. Chris Casteleyn Vice President 8

9 Reference G2 Team Ron Lentz, Managing Director T&L Jeffrey Unger, CEO Christopher Casteleyn, Vice President T&L Jake Cunnane, Analyst Term Definition Revenue Total revenue from the sale of goods and services rendered during the reporting period, in normal course of business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net interest income after loan loss provisions EBITDA Market Cap Long-Term Debt Net Debt Earnings before interest, taxes, depreciation, and amortization. Calculated as Revenue Expenses, excluding interest, taxes, depreciation and amortization Market value of a company using most recently reported basic weighted average shares outstanding. Calculated as Market Price (as of period end) * Basic Weighted Average Shares Outstanding Sum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or the normal operating cycle, if longer Net Debt shows the company s overall debt situation by netting the value of debts with cash and other similar liquid assets. Calculated as Total Debt Cash & Cash Equivalents and Short Term Investments Enterprise Value Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end. Calculated as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock Cash and Short Term investments P/E A valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price / Earnings per Share for the last annual period Tangible Book Value Total Shareholder s Equity Goodwill and Intangible Assets For more information about G2, please visit: Our corporate headquarters is located at: 535 Boylston Street, 11 th Floor, Boston, MA Boston Chicago Indianapolis Naples San Francisco The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry, or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such information, errors therein or omissions there from. Securities offered through Western International Securities, Inc. Member FINRA & SiPC. G2 Capital Advisors (dba G2 Securities) and Western International Securities are separate and unaffiliated entities. 9