Private equity investors are still “partial acquisitions” and loaning capital enthusiastic about supply chain to companies to fund their expansion. and logistics companies, despite Avron can do this during the middle the financial crisis and what of the worst credit crisis in a half-centu-looks to be a lengthy recession. ry because its backers don’t have to rely But those investors face stiff on debt to get things done, said Lee A. headwinds finding suitable companies Clair, partner at transportation consul-to buy and finding financing for those tancy Norbridge. “I view private equity acquisitions. as a very good opportunity, a very good
“The current markets are extremely option,” Clair said. difficult for companies in the $50 million to $100 million value range,” said Todd
Solow, partners at Norwest Equity Partners. “It’s very challenging, and financing, if you can get it, is very expensive, and the terms are onerous compared with even six months ago.”
New Mountain Capital:
Inmar/Carolina Logistics Services,
2006
Fenway Partners: Fastfrate, 2007
Welsh, Carson, Anderson & Stowe:
OHL (formerly Ozburn-Hessey
Logistics), 2005
Source: Company reports
“I don’t see that changing,” Solow said, adding that the economic outlook for 2009 isn’t any better than for the rest of 2008.
But that hasn’t stopped venture capital firm Austin Ventures from pledging up to $75 million to create Avron Partners, a new strategic acquisitions and business development company.
Ronald T. Sorrow, the former CEO of RoadLink USA and CSX Intermodal, is CEO of Avron. The new company will be built to last, not just to be sold, Sorrow said.
Avron is already in discussions with a half-dozen or so companies it might acquire, Sorrow said, though he declined to mention names. “We’ve cast a fairly broad net and haven’t limited our thinking to one particular type of acquisition,” he said. The company will also consider
Private equity groups have been aggressively making deals in small- to mid-sized transportation and logistics companies for the last few years. Fenway Partners invested in RoadLink, Sorrow’s old company, in 2006, as well as Refrigerated Holdings, Fastfrate, Panther Expedited and Preferred Freezer Services, all since the middle of the decade. New Mountain Capital injected equity into Intermarine and Inmar just in the last couple of years.
Lately some private equity investors have set their sights on bigger fish. Welsh, Carson, Anderson & Stowe in 2005 took an ownership position in OHL, formerly Ozburn-Hessey Logistics, while perhaps the best-known private equity play was Apollo Management’s 2006 purchase of Netherlands-based TNT Logistics, now called CEVA Logistics.
Private equity typically purchases companies with the goal of selling them at a profit after five to seven years, but Sorrow said Avron’s Austin Venture backers have indicated they want to make the new company a going concern. “We’re prepared to take a pretty patient approach,” Sorrow said.
Patience may be the key, Solow said, because in the current financial and economic climate, investors need to be willing to wait for the right deals to become available.
Owners of, or investors in, poorly performing logistics and transportation businesses may feel pressured to sell in the
current weak business climate. With debt expensive when it’s available at all, sellers will have to come off what were until recently high multiples over earnings to attract buyers.
The highly fragmented transportation and logistics sector may be particularly well suited for private equity investment, Clair said. Buyouts and roll-ups of $30 million companies that can be quickly consolidated, especially LTL carriers, to facilitate growth are a specialty of many private equity firms.
“It’s synergies of size, not economies of scale,” said Clair. “It’s much harder to get economies of scale in truckload.”
However, the logistics industry is also strewn with companies that tried to go boldly into what appeared to be promising markets. Greatwide Logistics and Global Logistics Acquisitions Corp. — the former now in Chapter 11 bankruptcy protection, the latter erected on a buy-and-build strategy similar to Avron — are among those that foundered in depressed sales environments.
Avron will be different, Sorrow said. The company need not rely on debt markets to finance its acquisitions, he said, it won’t buy turnaround projects or distressed businesses, and it will rely on proven executives such as Sorrow.
“There is a need for patient and disciplined investors,” Solow said. “With all the turmoil in financial markets, there is little premium for being an aggressive investor.”
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