There are two tales to be told in the sale of third party logistics (3PL) firm Transplace to CI Capital Partners LLC, a New York-based private investment firm.
The first is a story about growth; about how CI and Transplace both see burgeoning opportunities in the heavily fragmented $40 billion logistics market and aim to scoop up market share. The second is about cash; about how Transplace’s four truckload carrier owners, struggling through one of the worst freight recessions in the industry’s history, decided they needed money more than shares in one of the top 10 3PLs and freight brokers in the country.
“This is not a bad time to sell,” Satish Jindel, president of transportation research firm SJ Consulting, told Fleet Owner. “Transplace’s management is staying on and they’ve proved their model works in the industry. There’s still a need for what they do, although they still need to build up their technology, but now they’ll have the capital to do it.”
Capital has been hard to come by for Transplace, largely because the bottom lines of its previous four owners – J.B. Hunt Transport Services, Swift Transportation, U.S. Xpress Enterprises and Covenant Transportation Group – are under tremendous pressure due to long-term declines in freight demand.
“Trucking has been in a recession since 2005, because once GDP [gross domestic product] drops below 3%, there’s little or no growth in freight,” explained Noel Perry, a senior consultant with FTR and principle of research firm Transport Fundamentals. “That’s created a lot of cumulative stress on carriers that got added to the ‘shock’ of the recession, putting an enormous strain on their capital resources.”
Covenant, for example, saw its freight revenue decline 18% to $133 million in the third quarter this year versus the same period in 2008. It also recorded an $11.6 million non-cash impairment charge related to the write-down of its entire 12.4% stake in Transplace, leading to an overall after-tax loss of $2 million in the third quarter this year for the company.
“This could be a way to not only raise cash but take debt off their [all four carrier’s] books,” Chris Brady, president of Commercial Motor Vehicle Consulting, told Fleet Owner. “In the current environment, it is hard to find an opportunity to roll over debt and raise capital.”
From Transplace’s perspective, though, its purchase by CI Capital Partners opens up new opportunities, especially for growth.
“We could not be in acquisition mode with our former owners,” Tom Sanderson, Transplace’s CEO, told Fleet Owner. “Now we have an opportunity to take our business to the next level, by not only gaining the capital back to invest more in our technology platform, but expand through acquisition into new industries or geographic areas.”
Transplace itself is comprised of two distinct pieces; providing logistics services on long-term contracts through a Web-based platform while also serving as a brokerage for shipping services, securing space on tractor-trailers and freight trains.
CI Principal Joost Thesseling told the Wall Street Journal that his firm has been looking for just such a platform in the logistics industry for the last few years, and after meeting Transplace’s Sanderson in June, hammered out a deal by this fall. The transaction closed last week. Though terms of the deal were not disclosed, The Journal reported CI’s equity investment was within its “typical” range of $50 million to $100 million.
The reasons behind the Transplace buy, Thesseling explained, were fairly simple. On the one hand, Transplace was deemed “non-core” by its trucking owners – “It can be hard to run a business alongside your own competitors,” he told the Journal – while on the other, CI liked Transplace’s 10% in top-line growth. He added that CI and Transplace are “actively” looking for both organic growth opportunities and acquisition of companies with specialties, such as customs clearance and air- and ocean-transport expertise.
“The opportunity there is to buy a company with a number of customer relationships and long-term outsourcing contracts and put them on the Transplace technology platform,” Thesseling said.
“In our view, 2009 was not a slow year. This was actually a break out year for us, with double digit growth – and no one would have been interested in buying us if we were not growing,” George Abernathy, Transplace’s executive VP and COO, told Fleet Owner. “Being a non-asset 3PL in this market is a strength; companies are looking to outsource and we plan to aggressively go after new business.”