Issue: November 11, 2013 Logistics M&A Industry Update

Transcription

1 Issue: November 11, 2013 Logistics M&A Industry Update

2 Industry Snapshot Industry News Expeditors International of Washington reported a $92.4 million profit for Q3 2013, a 4.4% YOY increase. Air freight services division revenues rose 0.9% to $628.1 million. Revenue from customs brokerage and other services increased 6.1% to $381.9 million. Expeditors profit for the first nine months of 2013 increased 6.6% to $266.0 million v. $249.5 million for the same period last year. Echo Global Logistics posted another quarter of double-digit revenue and earnings growth, posting record profits of $4.4 million in the Q3 2013, a 90.8% jump vs. prior year s $2.3 million, and an all-time high quarterly revenue of $234.8 million. Ryder System s Q3 profit declined 5.3% to $71.1 million v. prior year s $75.1 million. However, quarterly revenue rose 4.0% to $1.63 billion from $1.57 billion in the same period last year. On November 6, Arc Logistics Partners LP launched a $120 million IPO on the New York Stock Exchange, with a market capitalization of $243 million at a price range midpoint of $20. XPO Logistics reported Q3 revenue of $194.0 million, a 173.3% annual increase, with gross margin dollars up 251.0% to $34.8 million. Despite strong revenue, the firm reported a net loss of $6.0 million compared to a $3.1 million net loss for Q The loss reflects a $10.3 million tax benefit related to the release of a valuation allowance against deferred tax assets, $3.1 million in accelerated amortization of intangible assets related to rebranding its freight forwarding business; and a $3.0 million commitment fee related to an undrawn debt funding option for the 3PD transaction. Notable M&A Activity FleetCor Technologies acquired NexTraq from Francisco Partners Ingram Micro entered into a definitive agreement to acquire Shipwire, Inc. ebay will acquire UK based Shutl Limited Axis Global Logistics acquired BE Logistics Platinum Equity acquired HomeDirect, Inc. from Transportation Resource Partners BlueGrace Logistics acquired United States Transportation Consultants Capital Markets (% Change) % Change 1 Week 4 Weeks YTD Large Cap Logistics Index 0.1% 9.8% 32.3% Middle Cap Logistics Index (4.0%) 0.6% 14.7% Small Cap Logistics Index 0.8% 4.0% 11.7% S&P 500 (0.5%) 3.2% 22.5% Source: Public Filings; Industry Newswires and Capital IQ as of 11/07/13 1

3 Industry One on One about Strategy and Acquisitions conducts a One on One with the President of Access America Transport (ATT). Access America Transport Overview Access America was recognized by Inc. Magazine in four consecutive years as one of America s fastest growing private companies. Forbes named Access America Transport one of America s Most Promising Companies in its February 2013 edition. Chad resides in Signal Mountain, TN with his wife and son. s Bio is President at Access America Transport where he leads day-to-day operations for one of America s fastest growing thirdparty logistics providers. Chad s role with the company has evolved over the past nine years as Access America increased sales from $8 million to more than $500 million. He holds a Bachelor of Science degree in Logistics from the College of Business at The University of Tennessee. President Access America Transport 2

4 Industry One on One Strategy and Acquisitions, Access America Transport How did you get into the logistics business? What s your favorite part of the business? I was a Logistics major at the University of Tennessee and have always enjoyed transportation in general. My favorite part of this business is the ability help customers and carriers recognize efficiencies. The opportunities are endless. Access America Transport only accounts for 1/3 of 1% of revenue in a $150 billion, growing industry. The opportunity to build something special is beyond the scope of any other established market. Is UT s Logistics program running ahead of the industry curve? Yes, UT has an outstanding, broad program and has done an excellent job of integrating business, marketing, finance and technology. Many of our new hires come from there. What would you like readers to know about you or AAT that s not on your (impressive) website? Our people First and foremost, Access America is built on a strong foundation and supported by the industry s most dedicated work force. We take a great deal of pride in personal and professional growth. I really feel like culture is the most underestimated driver of success in business today. Our culture is evident when you walk into an office and feel the energy exuded by our team. We truly care about our carrier and customer partners. I think this is rare in any industry today. 3

5 Industry One on One Strategy and Acquisitions, Access America Transport Can you talk a bit about AAT s rapid growth? Do you think you can sustain your high growth rate or do you foresee acquisitions to complement your growth? We feel very confident in our business model and philosophy to drive future growth. I think our business is very scalable into a multi-billion dollar industry leader. The key for Access America is continuing to build solid foundations and relationships. We are a process-oriented company and are quickly able to ascertain the challenges faced by our carrier and customer partners. I think this has given us a great deal of credibility and a level of comfort to build a stronger organization. There are very few companies in the market that even share cultural similarities to AAT. and we are growing so quickly organically that, for the time being, we aren t looking to grow via acquisitions. Why was Steam Logistics, an international air and ocean shipping company related to but not an AAT subsidiary, kept separate from AAT? We looked initially at having Steam operate as a division of Access America, but felt compelled to see it stand alone after reviewing the start-up road map that led to AAT s growth and success. I am a firm believer that an entrepreneurial culture will lead to results. Steam s operating environment is much different than AAT s because it is a licensed NVOCC. This contradicts our model as we are not considered a carrier. We didn t want to confuse AAT customers and we believe that Steam will be strongest by developing that same mentality that has led to our success independent of Access America. 4

6 Industry One on One Strategy and Acquisitions, Access America Transport It seems that most of your business is conducted over the telephone or by computer. How does the opening of new offices accelerate growth? We do not necessarily view new offices as the driver for our growth as a company. Our operating model allows our teams to work with shippers and carriers all over the country despite their physical proximity to a particular location. The driver of new office openings has generally been a key team member requesting to relocate. We are broken into pods at each of our locations and it makes no difference where those pods are physically located. Our growth is achieved through a process where we segment team members into groups and allow those groups to drive their own organic growth. What are AAT s key metrics? Are any the focus of a strategic initiative? Customer service is paramount so we have structured many of our KPI s to drive service parameters. We look at on-time pick-up/delivery, customer/carrier volume growth, consistent customer outreach and new business among other KPI s. World class customer service at a competitive price is driving our growth. We also have a fantasy football type system that provides a great deal of transparency across our organization. We believe this fosters competition and allows our team to benchmark their progress (to the minute) openly with others across our organization. Does AAT provide optimal routing to any of its over the road carriers based on construction and traffic conditions? We currently do not as we cannot operate as an asset-based carrier. We will advise carriers of information that we receive, but the routing piece still falls to those trucking companies. 5

7 Industry One on One Strategy and Acquisitions, Access America Transport Does Six Sigma lend itself to any aspect of your business? I think Six Sigma plays a vital role in shaping a foundation of how a business can continue to evolve and prosper. Jack Welch pioneered the concept and proved its validity as a business improvement strategy and there has been a trickledown effect into our business as other shippers have incorporated these principles into their processes. I believe our industry is changing quickly and we are being asked to play a more central role in assisting customers with decision making than in the past. AAT as a supply chain partner is being challenged to develop new techniques and processes that will continue to help derive value from the supply chain. Is Six Sigma implied in your ISO 9001: 2008 certification? Our ISO 9001:2008 certification is a quality management certification that is essential to providing standardized processes and results to our customers and carriers. I think this is certainly different than Six Sigma since the end goal is not to eliminate waste, but to properly document SOPs. I do believe that our ISO certification provides us with an avenue to define processes that can eliminate waste, but a Six Sigma operating environment is still going to look quite different. I think Six Sigma will continue to become more fundamental to how all carriers and 3PL s interact with shippers in the coming years. What distinctive, maintainable competitive advantage(s) does AAT have over its competitors? Culture, speed, determination and an entrepreneurial spirit Our people care more and that generally translates into better service and more efficiency. We will do whatever it takes to accomplish a task and we believe that empowering our people closest to our customers to make those decisions is paramount. 6

8 Industry One on One Strategy and Acquisitions, Access America Transport Is your Enterprise Resource Planning (ERP) software commercial off-the-shelf or is it proprietary? What are some of its key features? We use a couple of commercial packages and have developed some key proprietary software that helps us run our business the way we see fit versus being pigeon-holed into an operating system that has been designed for the masses. The most critical feature of our software is the ability to be very transparent in our operations. Our system allows us to quickly drill down and identify bottlenecks instead of taking a reactive approach. Is AAT working on any new technology initiatives? We are constantly working to deploy new resources to our teams and partners. We have several in-house and cloud-based projects that are in various stages of development. I am most excited about our ability to streamline activities through technologies that will help automate our load booking processes. Are truck and container GPS tracking integrated into AAT s ERP system to help predict delivery times? Yes, our technology package integrates with MacroPoint and allows us to utilize mobile technology to track shipment data. We are also working to integrate additional EDI transmissions to our carrier partners to cut down on manual processes. These are areas where we continue to invest heavily in R&D. 7

9 Industry One on One Strategy and Acquisitions, Access America Transport For temperature-critical shipping, are on-board temperatures monitored at AAT? We do not always have the ability to remotely monitor on-board temperatures, but are identifying new technologies that will help us provide this visibility more readily. What are the biggest challenges facing AAT in the next few years? Evolution and innovation. We must continue to think outside the box as to how we can deploy new resources to customers and become a more integral part of their business. The 3PL s that do this well will be successful. I think we also must continue to foster a work environment that promotes a positive culture as we grow into a billion dollar company in the coming years. Where do you expect revenue growth to come from? Freight management is an area that I believe holds a great deal of promise for Access America. Our level of sophistication as an organization is such that we need to remain on the forefront of innovation. The 3PLs that can accomplish and execute on this strategy stand to reap some huge rewards. Access America already has a very diverse customer base and works with 90 of the Fortune 500. How can we become more valuable partners to shippers of all sizes? We believe there are incredible growth opportunities here if we can continue to take advantage of technology. 8

10 Industry One on One Strategy and Acquisitions, Access America Transport Are there any aspects of your strategic plan you can share with us? Technology will be pivotal to growth. We are working each day to increase productivity and efficiency. Our long-term strategy and vision are to enhance our capabilities where we can quickly customize, design, and implement solutions to provide valueadded services. What suggestions do you have for other entrepreneurs interested in starting a logistics business? Innovation It is impossible today to start a business by trying to do things the way everybody else has done them in the past. I think entrepreneurs need to identify an execution strategy, but be flexible to change in a hurry. Quick decision-making and empowerment of your team members will allow you to be flexible and nimble enough to navigate past challenges more easily. Do you have any favorite stories to share from your time in the business? I have too many to mention here! I think my favorite is thinking back to my time with Access America when we had seven fulltime employees. Our phones were cut off one week due to a major line being cut in the parking lot. We had phones rolled to every cell phone in our office, and we were throwing phones across the room to each other. Those times definitely make me appreciative of redundant phone technology that we have established today More About Our One on One Series This is the third in a series of interviews we are conducting with C level executives in the Transportation and Logistics space. We welcome any and all feedback on these interviews. Please direct all requests to Harry Ward at hward@mcleanllc.com. 9

11 Announced M&A Transactions acquired acquired acquired Closed Closed Closed September 20, 2013 September 24, 2013 September 26, 2013 Notes Notes Notes BlueGrace Logistics acquired United States Transportation Consultants (USTC). Based in Baltimore, USTC is one of the nation's oldest and most trusted shipping and transportation companies. The acquisition allows USTC to increase corporate support and expand resources for customers and franchises. The acquisition well aid in BlueGrace s continued growth which is driven by increasing demand from small- to mid-size businesses for third-party shipping providers. Dunavant Transportation Group acquired the Houston and Dallas operations of Transportation Consultants Inc., a New Orleansbased third-party logistics provider founded in The acquisition is part of Dunavant s continued evolution from a cotton merchant into a purely third-party logistics and asset-based transportation firm. The deal is Dunavant s second Houston market acquisition in the in the past three years in 2011 Dunavant acquired Trans Gulf Transportation. Platinum Equity acquired HomeDirect, Inc. from Transportation Resource Partners (TRP) and is combining the business with portfolio company MXD Group. Both companies specialize in high-touch white glove delivery services for North American retail brands across a consumer segments. HomeDirect was established in 1995 as part of the Bekins Company and has been owned by TRP since MXD Group (formerly Exel Direct), was acquired by Platinum Equity from Exel Inc., a subsidiary of Deutsche Post DHL, in May Source: Capital IQ and InfoBase as of 11/07/13 10

12 Announced M&A Transactions acquired acquired acquired New Jersey-Based Waste-by-Rail Transload and Intermodal Facility Operations Closed Closed Closed September 27, 2013 September 30, 2013 October 10, 2013 Notes Notes Notes Axis Global Logistics a provider of time-critical transportation services and supply chain solutions, acquired BE Logistics, a Los Angeles based logistics and service provider. The acquisition is part of Axis ongoing expansion and the company s continuing effort to enhance the supply chain solutions it provides to its domestic and international customers. It also expands Axis expertise and capabilities in both the West Coast and Asian markets. Platte River Equity acquired a controlling stake in Wildcat Minerals LLC. Founded in 2007 as an oilfield consumables distributor, Wildcat has evolved to become the leading independent material handling solutions provider to proppant (sand) producers. Wildcat serves a critical niche in efficiently managing the logistics of the material from mine to well and provides everything from procurement, to inventory management and transloading. Source: Capital IQ and InfoBase as of 11/07/13 EnviroSolutions, Inc. (ESI) acquired the New Jersey-based waste-by-rail transload and intermodal facility operations of Environmental Logistics Services (ELS), a portfolio company of Centre Partners. The acquisition includes ELS interests in New Jersey Rail Carriers (NJRC) and New Jersey Transloading, LLC, the long-term operating lease of NJRC, rail cars and containers, additional operating equipment and customer contracts. Acquired operations total annualized revenues are estimated at $40 million, making ESI one of the largest wasteby-rail companies in North America. 11

13 Announced M&A Transactions will acquire acquired Announced Closed October 10, 2013 October 25, 2013 Notes ebay announced that it will acquire UK based Shutl Limited for an undisclosed amount. Shutl is the world's fastest, most convenient same-day and same-hour delivery service, capitalizing on the concept that approximately 75% of commerce happens within 15 miles of consumers homes. The acquisition is a part of ebay s vision to redefine local commerce. Notes Monar International acquired National Leasing and Brokerage Inc. (NLB). Based in California, NBL is a transportation service provider focused on drive-away logistics management services. NLB has eight offices located in the lower 48 states allowing for coast to coast unit movement. NLB s national footprint will enable Monar to implement a new strategic direction by identifying acquisition targets in the US transportation services market; priority sectors include auto/vehicle transport, drive away services, fleet management, and truck manufactured movements. Source: Capital IQ and InfoBase as of 11/07/13 12

14 Announced M&A Transactions will acquire acquired Announced Closed October 28, 2013 October 30, 2013 Notes Ingram Micro entered into a definitive agreement to acquire Shipwire, Inc., a leading provider of global fulfillment services for emerging multi-channel brands. The Shipwire platform provides ondemand e-commerce fulfillment and supply chain management from a network of global pick-pack and ship warehouses to more than 1,000 emerging brands and web retailers. Shipwire pioneered cloud logistics with on-demand fulfillment center and shipping tools, Web services, and innovative developer tools to solve complex global logistics problems. Notes FleetCor Technologies, acquired NexTraq, from Francisco Partners. NexTraq provides fleet operators with an internet based system that enhances workforce productivity through real time vehicle tracking, route optimization, job dispatch, and fuel usage monitoring. NexTraq is based in Atlanta with a strong customer base of small and medium-sized businesses. The Company has grown subscribers more than 20% annually and reached 100,000 active subscribers with strong recurring monthly fee revenue model. Source: Capital IQ and InfoBase as of 11/07/13 13

15 Public Market Valuations Forward EV/2013E EBITDA Multiples* Average: 10.4x Median: 10.9x Large Cap Logistics Mid Cap Logistics Index Small Cap Logistics Index Average: 10.2x Average: 9.8x Average: 11.1x 6.7x 10.6x 13.3x 5.1x 11.1x 11.4x 11.7x 8.6x 10.5x 10.9x 14.3x FedEx UPS CH Robinson Ryder JB Hunt Landstar Expeditors TransForce Hub Group ECHO Global UTi Worldwide Historical EV/LTM EBITDA Multiples* 16.0x 15.0x 14.0x 13.3x 13.0x 12.0x 11.0x 11.0x 10.0x 9.7x 9.0x 8.0x 7.0x 3/1/2010 6/1/2010 9/1/ /1/2010 3/1/2011 6/1/2011 9/1/ /1/2011 3/1/2012 6/1/2012 9/1/ /1/2012 3/1/2013 6/1/2013 9/1/2013 Large Cap Logistics Index Mid Cap Logistics Index Small Cap Logistics Index *Excludes outliers trading below 0.0x EBITDA or above 25.0x EBITDA. Source: Public Filings; Capital IQ as of 11/07/13 14

16 Capital Markets: Overview 40.0% Last 52 Weeks Custom Index Performance 35.0% 30.0% 25.0% 20.0% 34.7% 26.8% 22.2% 20.9% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% Nov 2012 Dec 2012 Jan 2013 Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Large Cap Logistics Index Mid Cap Logistics Index Small Cap Logistics Index S&P 500 Index Index Constituents and Stock Price as a % of 52 Week High Large Cap Logistics Index 98% 95% 88% Mid Cap Logistics Index 90% 93% 96% 92% Small Cap Logistics Index 99% 85% 88% 88% 76% Source: Public Filings and Capital IQ as of 11/07/13 15

17 Capital Markets: Stock Performance Last 4 Weeks Last 52 Weeks FedEx Corporation 13.5% FedEx Corporation 45.0% TransForce 11.2% XPO Logistics 42.6% United Parcel Service 9.2% Ryder System 41.7% Ryder System 8.6% TransForce 36.5% Hub Group 3.5% United Parcel Service 35.8% S&P 500 Index 3.2% S&P 500 Index 26.8% CH Robinson Worldwide 1.8% JB Hunt Transport Services 24.5% UTi Worldwide 1.1% Hub Group 19.7% JB Hunt Transport Services 1.1% Echo Global Logistics 19.2% Landstar System (1.1%) Expeditors Int'l of Washington 14.8% Expeditors Int'l of Washington (2.2%) UTi Worldwide 11.7% Echo Global Logistics (2.7%) Landstar System 9.4% XPO Logistics (7.2%) CH Robinson Worldwide (3.1%) (15%) (10%) (5%) 0% 5% 10% 15% (20%) 0% 20% 40% 60% Large Cap Logistics Index Mid Cap Logistics Index Small Cap Logistics Index S&P 500 Source: Public Filings and Capital IQ as of 11/07/13 16

18 Dry Powder Calculations Large Cap Logistics Index ($ millions) 3x LTM EBITDA $12,573.0 $17,148.0 $2,315.1 Less LT Debt 12, , Plus Cash 5, , Dry Powder $5,075.0 $19,251.0 $1,594.8 Mid Cap Logistics Index 3x LTM EBITDA $1,778.1 $2,445.8 $4,314.0 $652.7 Less LT Debt , Plus Cash 1, Dry Powder $3,088.5 $1,764.3 $351.9 $605.3 Small Cap Logistics Index 3x LTM EBITDA $1,017.0 $322.9 $419.8 $91.8 -$117.0 Less LT Debt Plus Cash Dry Powder $227.5 $83.1 $481.8 $ $163.6 Dry powder calculations provide a simple analysis of select logistics companies M&A capacity. uses a conservative 3x EBITDA, less existing long-term debt, plus cash balance to calculate dry powder and create a baseline assessment of a company s acquisition capacity. Source: Capital IQ as of 11/07/13 17

19 About Founded in 1997, is a national, middle market investment bank with deep expertise in a variety of industry verticals. Headquartered in McLean, VA, is among the largest independent middle market investment banks in the region. Our core advisory services include: Mergers & Acquisitions uses its considerable experience and expertise in the transportation and logistics industry to guide its clients through each stage of the mergers & acquisitions (M&A) process and ultimately identify the most probable and suitable candidates to complete transactions under the most favorable terms. Business Valuation & Litigation Support As a core competency and complement to its M&A business, provides business valuation services, including intangible asset and financial security valuations for a variety of transactions, financial reporting and tax purposes. In addition, has the experience and credentials necessary to support litigation proceedings, including quantifying economic damages and valuing a minority interest in a business. Capital Formation arranges private equity, venture capital, senior debt and subordinated debt to support clients expansions, M&A, refinancings, recapitalizations, leveraged buyouts and other shareholder liquidity objectives. Strategic Consulting 's Strategic Consulting business provides transaction, financial and interim management services to companies ranging from start-up entities to publicly-held corporations across an assortment of industries. McLean Securities, a wholly-owned affiliate of, is a registered broker/dealer with the Financial Industry Regulatory Authority (FINRA) and a Member, Securities Investor Protection Corporation (SIPC). 18

20 Recent Advisory Experience 19

21 Contact Information 7900 Westpark Drive, Suite A320 McLean, VA Main: Fax: Logistics Team Mitch Martin Principal Samuel Britton Managing Director Harry Ward Director Neil Paschall Managing Director Jack Zollinger Managing Director Disclaimer: does not provide accounting, tax or legal advice. The contents of this document are believed to be reliable, however The McLean Group, LLC makes no representation as to the accuracy or completeness of this information. 20