CLOSING THE DEAL Consolidation Trends in Transportation & - - PDF document

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CLOSING THE DEAL

Consolidation Trends in Transportation & Logistics

Jeff Ronsse Managing Partner jronsse@bkd.com Chris Dalton Partner, National Practice Leader Transaction Services cdalton@bkd.com Matt Klauser Director Transaction Services mklauser@bkd.com Greg Lafin Managing Director BKD Corporate Finance glafin@bkd.com Gerry DeBiasi Partner, Kidd & Co. gdebiasi@kiddcompany.com

September 28, 2017

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• Consolidation in transportation & logistics – interest &

importance

• Transportation industry is highly competitive & fragmented –

consolidation is attractive

• Correlation with consumer spending
• Increase in value added or niche services – key differentiators
• Technology-based services

INTRODUCTION

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• Numerous perspectives for today’s discussion
• Corporate Finance
• Transaction Services
• Audit/Tax
• Private Equity

INTRODUCTION

BKD Corporate Finance, LLC (BKDCF) has seen an increase in the activity of mergers & acquisitions (M&A) consolidation occurring in the trucking & transportation segment. This trend is expected to continue throughout the next five years, with market experts forecasting annual growth of 3 percent

TRANSPORTATION & LOGISTICS INDUSTRY UPDATE – HY 2017 OUTLOOK

Key External Drivers Include

• Industrial Production Index
• Freight Transportation Services Index
• Consumer spending
• Price of crude oil
• E-commerce sales

Keys to M&A Consolidation

• Access to quality personnel
• Customer relationships
• Optimum capacity utilization
• Technology
• Governmental policies & regulation
• Very competitive landscape
• Increased supply chain complexity

Key Highlights

• Lowest performing subsector stock in

Q2 of 2017 was Reverse Logistics, up 0.3%

• On average, EV/LTM EBITDA multiples

for the subsectors were up by 0.3x over the prior quarter & up 1.3x on a year

• ver year basis

Source: Harris Williams, Lincoln International

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• The 3PL market is forecast to grow at a significant rate owing to the increasing focus of manufacturers on their core businesses &

subcontracting the activities, where they have less expertise

• The growth in the e-commerce industry is expected to drive the 3PL market due to an increase in demand for fast delivery,

efficient inventory management, freight forwarding & individualized shipping time

• The players in the e-commerce sector are focused on selling goods online, thus necessitating the need for 3PL market providers

INDUSTRY AT A GLANCE: LOGISTICS

11.2x 11.7x 12.0x 12.4x 12.8x 8.9x 10.7x 12.8x 8.8x 8.8x 6.0x 8.0x 10.0x 12.0x Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

EV/EBITDA

3PL Reverse Logistics

3PL MARKET TO SURPASS $1,100 BILLION BY 2024

Source: IBIS World, Lincoln International

• Shippers are also anticipated to shift more of their transportation operations onto 3PL providers as they try to simplify their

supply chain & focus their core business

• Large multinational corporations & even small domestic retailers or manufactures are increasingly relying upon 3PL companies to

provide transportation services that could simplify & manage supply chains that stretch over continents

• Industry revenue is projected to climb at an annualized rate of 3.6% to $198.6 billion over the five years to 2021

TRENDS & OUTLOOK – LOGISTICS

71.70% 22.40% 5.90%

Products & Services Segmentation

Transportation Management Warehousing and Related Services Other Services

Total $166.5Bn

Source: S&P Capital IQ, Lincoln International

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• Expected annual growth to be 2.2%+ over the next five years
• Upticks in consumer confidence & spending will boost demand for goods transportation
• The industrial production index is expected to increase in 2017 & 2018
• Further increases in per capita disposable income & consumer confidence are expected to cause consumer spending to rise

INDUSTRY AT A GLANCE: TRUCKING

9.1x 9.4x 9.8x 10.5x 10.9x 6.1x 6.5x 7.4x 7.4x 8.2x 6.1x 6.5x 6.9x 6.9x 6.6x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x 11.0x 12.0x Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

EV/EBITDA

Freight Forwarding/Intermodal Truckload Carriers Contracted Transportation

Improving economic conditions & a rise in diesel prices will benefit the industry

Source: IBIS World, Lincoln International

• Industry consolidation will allow larger companies to leverage their size, resources & expand their geographic reach
• The industry’s largest players have been able to attract more business, enabling them to outperform smaller companies, which

account for the vast majority of industry market share

• Growing trade volumes will support steady industry revenue growth
• Due to fragmentation, operators experience intense price competition & generally earn low profit margins

TRENDS & OUTLOOK – TRUCKING

38.10% 37.40% 24.50%

Products & Services Segmentation

Other Transposrations Services Truckload Carriers Less-Than Truckload Carriers

Total $222.4Bn

Source: IBIS World

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GF DATA – PRIVATE EQUITY MULTIPLES

NAICS Code: 484 Truck Transportation (21) Enterprise Value Range Total Enterprise Value ($ in millions) Revenues ($ in millions) TTM Rev Growth % EBITDA Margin % Enterprise Value/Revenue Enterprise Value/EBITDA # of Transactions 10 - 25 16.9 30.6 7.0 16.4 0.6 4.5 2 25 - 50 33.1 43.5 17.6 17.5 0.9 5.3 2 50 - 100 58.8 54.2 8.8 21.8 1.1 5.3 1 100 - 250 177.5 216.5 15.8 12.6 0.8 6.8 1 Total 67.7 82.4 13.7 16.9 0.9 5.5 1.6 Year Total Enterprise Value ($ in millions) Revenues ($ in millions) TTM Rev Growth % EBITDA Margin % Enterprise Value/Revenue Enterprise Value/EBITDA # of Transactions 2005-2006 27.9 38.7 28.7 21.4 0.9 4.1 3 2007 97.7 132.3 9.8 11.6 0.8 6.5 4 2008 105.6 93.8 24.6 19.5 1.0 5.2 3 2009-2011 39.7 54.7 6.5 14.5 0.8 5.7 4 2012-2013 127.2 168.3 10.8 15.3 0.9 6.1 3 2014-2016 31.4 32.6 8.7 20.0 1.0 5.3 5 Total 67.7 82.4 13.7 16.9 0.9 5.5 22

Source: S&P Capital IQ, Lincoln International

GF DATA – PRIVATE EQUITY MULTIPLES

NAICS Code: 4885 Freight Transportation Arrangement (6) Enterprise Value Range Total Enterprise Value ($ in millions) Revenues ($ in millions) TTM Rev Growth % EBITDA Margin % Enterprise Value/Revenue Enterprise Value/EBITDA # of Transactions

10 - 250 73.3 131.0 15.5 18.4 1.2x 6.8x 6

Total

73.3 131.0 15.5 18.4 1.2x 6.8x 6

Year Total Enterprise Value ($ in millions) Revenues ($ in millions) TTM Rev Growth % EBITDA Margin % Enterprise Value/Revenue Enterprise Value/EBITDA # of Transactions

2003-2007 77.4 65.4 14.4 22.8 1.7x 6.6x 3 2009-2012 69.2 196.6 16.5 13.9 0.7x 7.0x 3

Total 73.3 131.0 15.5 18.4 1.2x 6.8x 6

Source: S&P Capital IQ, Lincoln International

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INDUSTRY ACQUISITIONS

Industry Acquisitions

($ in Millions) Date Acquiring Company Seller (Description) Net Transaction Value Revenue EBITDA Multiple of Revenue Multiple of EBITDA Sept-5-2017 Daseke R&R Trucking Sept-2-2017 Carlyle Group United Road Vehicle Transporter Aug-17-2017 Quick International Courier Unitrans 95 325 0.29 June-10-2017 Penske Truck Leasing Old Dominion Truck Leasing Apr-10-2017 Knight Transportation Swift Transportation 2,971 4,008 480 0.74 8.35 Dec-27-2016 Daseke Hennessy Capital Acquisition 626 Oct-28-2016 Transforce CFI 558 530 115 1.05 4.85 Jul-30-2015 Celadon Group Inc. Buckler Transport 14 13 1.09 Jul-6-2017 Heartland Express Interstate Distributor 117 Mar-02-2015 CRST International, Inc. Pegasus Transportation, Inc.

• Dec-07-2015 Leonard's Express, Inc.

WCD Trucking

• Oct-30-2015 XPO Logistics, Inc.

Con-way Inc. 3,057 5,745 497 0.53 6.16 Aug-18-2015 Apax Partners LLP Quality Distribution Inc. 801 988 69 0.81 11.67 Aug-18-2015 United Parcel Service, Inc. Coyote Logistics, LLC 1,800 2,100

• 0.86

Jul-28-2015 Roadrunner Transportation Systems, Inc. Stagecoach Cartage and Distribution, LP. 40 34 7 1.18 5.71 Jan-20-2015 Celadon Group Inc. Taylor Express, Inc. 43 38

• 1.13

Has been acquired by

Minneapolis, MN

BKD Corporate Finance acted as financial advisor to JBS Logistics in this transaction

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Trailer Rental Company

Has been acquired by

Private Investors

BKD Corporate Finance acted as financial advisor to the Trailer Rental Company in this transaction

PANEL DISCUSSION

Chris Dalton

Partner, National Practice Leader Transaction Services cdalton@bkd.com

Greg Lafin

Managing Director BKD Corporate Finance glafin@bkd.com

Jeff Ronsse

Managing Partner jronsse@bkd.com

Matt Klauser

Director Transaction Services mklauser@bkd.com

Gerry DeBiasi

Partner, Kidd & Co gdebiasi@kiddcompany.com

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FOR MORE INFORMATION Chris Dalton // cdalton@bkd.com

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