Transportation & Logistics Strategic Market Insights – Q1 2018 Report Transportation & Logistics G2 Insights – E-Commerce Driving Change E-Commerce has created a fundamental shift in how consumers purchase goods. Gone are the days of large pallets getting pushed to physical stores, replaced by consumers pulling demand with customized orders. Consumers expect a seamless shopping experience regardless of the retail channel selected, requiring the supply chain to become more integrated and efficient. To cost effectively address the change in demand and provide more transparency into deliveries, service providers are developing new capabilities in automation, data analytics, and software technology. E-Commerce is going to continue transforming the retail experience: 13% 49% $454 B E-Commerce sales E-Commerce sales 2017 Consumer as a share of total as a share of total Spending on online retail sales in 2017 retail sales growth retail 17.5% 4.4% $62 B Increase in E- Increase Total Retail Amazon Sales from Commerce Sales Sales over the last Online Retail in 2017 through 2017 year (up from 2.9%) Source: US Dept. of Commerce, Digital Commerce 360 The realities of the Amazon effect permeate throughout the E-Commerce eco-system, as their delivery criteria has set the industry standard. Accordingly to a survey conducted by Alix Partners of 1,000 shoppers, more than 50% were Amazon Prime members who expect 2-day shipping. The same survey found that more than 95% of shoppers stated that free shipping impacted purchase decisions. As millennials age, start families and utilize E-Commerce as their primary means of retail purchasing, vendors must keep pace with Amazon: . Accounted for 44% of all U.S. E-Commerce sales or 70% of E-Commerce growth in 2017 . Captured 4% of all 2017 U.S. retail sales . $8B of electronics sales was largest division / Amazon private label reached $450MM Efficiency and scalability are key to successfully compete in today’s retail environment. Vendor fulfillment costs have increased by at least 9% of net sales over the last 11 years, prompting change. Some companies are seeking to collaborate through partnerships and alliances to reduce the capital investment required to develop additional capabilities, capacity or density. Others will rely on acquisitions to accelerate the implementation of new tactics to strengthen their market position. Regardless of the approach, we expect to see a significant amount of change as supply chains around the world seek to keep up with the evolution of E-Commerce. 2006 2017 Total Cost Vender Delivery Vendor 17% of Vendor Delivery Vendor Cost Fulfillment Cost 2006 net sales Cost Fulfillment Cost 8% of 9% of 26% of 12% of 14% of net sales net sales 2017 net sales net sales net sales Source: AlixPartners, Amazon www.g2cap.com 2 Transportation & Logistics G2 Insights – Final Mile and Expedited Logistics M&A File mile and expedited logistics are keys segments impacted by E-Commerce with significant M&A activity. Strategics seek to expand capabilities into specialized services, achieve additional scale or enter new geographies. Private equity investors view final mile and expedited logistics as high growth sectors that offer opportunities for significant returns. Over the last twelve months, there have been more than 21 M&A transactions in North America within the final mile and expedited logistics space. Listed below are examples of recent transactions which include several retailers aggressively pursuing opportunities to accelerate the development of their E- Commerce platforms by acquiring established final mile capabilities. 1) Select Strategic Transactions Expanding into the Final Mile Sector a) Metro Supply Chain Group acquired Total E-Com Home Delivery (05/08/2018) – Metro Supply Chain Group, a Canadian logistics, warehouse and distribution company acquired Total E-Com, a door-to-door fulfillment of “big and bulky” online retail purchases b) Ryder System, Inc. (NYSE:R) acquired MXD Group, Inc. (04/03/2018) – Ryder, the publicly listed transportation and supply chain management firm, acquired MXD Group, Inc., a home delivery of door-to-door high-value and oversized items, in an effort to combat Amazon’s momentum in final mile delivery. Ryder acquired MXD Group for $120MM. c) HEB Grocery Company acquires NeighborFavor, Inc. (2/15/2018) – HEB Grocery, a grocery store chain in Texas and Mexico, acquired NeighborFavor, a tech-enabled courier service that delivers orders from grocery stores and restaurants to deliver enhanced convenience to its customer base. d) Target (NYSE: TGT) acquires Shipt Inc. (12/31/2017) – Target, the publicly listed superstore, acquired Shipt Inc., the nation’s fastest growing grocery marketplace delivering perishable goods nationwide, to accelerate its digital platform with same day delivery. e) Walmart Inc. (NYSE:WMT) acquires Parcel Inc. (10/03/2017) – Walmart, the publicly listed supermarket chain, acquired Parcel Inc., a tech-based same day and last mile courier of perishable and non-perishable goods in New York, in an effort to offer same day delivery to Walmart and Jet customers in New York City. 2) Select Private Equity Platform and Add-On Investments within the Final Mile Sector a) Greenbriar Equity Group acquires Lasership, Inc. (04/16/2018) – Greenbriar Equity Group, an established private equity firm in the transportation and logistics space, acquired Lasership, a regional asset-light provider of last mile services across a variety of industries. b) Northern Pacific Group recapitalized 1st Choice Courier (11/14/2017) – Northern Pacific Group, a Minnesota-based venture and growth equity firm, recapitalized 1st Choice Delivery company, a full-service final mile delivery company, and acquired, 4SameDay Couriers, a regional courier service provider. c) DoorDash, Inc. (venture backed) acquired Rickshaw, Inc. (NYSE:9/14/2017) – DoorDash Inc., a food delivery courier backed by reputable venture funds such as SoftBank, Sequoia Capital, GIC, and Kleiner Perkins Caufield & Byers, acquired Rickshaw, Inc., a same-day local delivery services company transporting food, gifts, meal subscriptions, and other consumer / E-Commerce related packages. Rickshaw was previously backed by Y Combinator Management. d) Quick International Courier, a Jordan Company platform company, acquires Unitrans Inc. (08/17/2017) – Quick International Courier, a platform company of the Jordan Company, a large private equity firm well-versed in the transportation and logistics space, acquired Unitrans, Inc., an expedited intermodal, ocean, air, and brokerage firm. Unitrans was previously a subsidiary of Roadrunner Transportation Systems Inc. (NYSE:RRTS) and was acquired for $95MM. Source: S&P Capital IQ www.g2cap.com 3 Transportation & Logistics G2 Insights – The Future of Final Mile Fleet owners have long since sought ways to increase fuel efficiency and reduce maintenance costs. A movement toward electric medium duty, short haul delivery vehicles provide fleet owners with an innovative alternative to traditional fossil fuel-dependent vehicles. The Time for eTrucks is Now With considerable time and capital invested toward developing an electric delivery vehicle alternative, eTrucks have developed to where total cost of ownership is on par with diesel and alternative powertrains. Infrastructure is increasingly available and emission standards have created regulatory tailwinds. Even though some challenges remain for full fledge adoption, electrification is happening fast and NOW. UPS is a leading player partnering with Workhorse Group (U.S.) and Arrival (UK). In 2017, UPS announced orders of 50 electric vehicles from Workhorse, an eTruck manufacturer that estimates its technology could improve fuel efficiency by more than 400%. Recently, UPS announced another test program of 35 vehicles from Arrival, a UK-based electric van producer, in London and Paris. The Company disclosed it has invested more than $750MM in alternative fuel and advanced technology vehicles since 2009. Other large players such as USPS, Penske, DHL and Ryder are all following suit and have ordered trucks for pilot programs. Manufacturers such as Daimler and Mercedes Benz are actively testing new capabilities across truck classes to influence the next standard of efficient vehicles. Workhorse and UPS have collaborated to deploy 50 electric, zero-tail pipe emission delivery trucks (left) while Daimler announced its roll out of its Class 4 Fuso eCanter all-electric truck (right). Source: UPS, Workhorse, Daimler, Trucking Info Transportation and Logistics Summary The table below references valuation metrics for select public companies identified in each of the industry’s key segments: Logistics, Marine, Rail Services, and Trucking. Public trading multiples range from 9.9x LTM EBITDA for Marine and Trucking companies to 11.0x LTM EBITDA for Rail Services providers. With strong demand for intermodal shipments (expected to grow by 4.2% through 2018) based on higher overall freight volumes and tightened capacity of long-haul trucking, rail services remains the highest valued segment in the public markets. LTM 20181 LTM 20182 Number of Median Median Median Enterprise EV / EV / Sector Selected Revenue EBITDA Value (MM) Revenue EBITDA Companies Growth Growth Logistics 19 4,088 12.5% 10.2% 1.1x 10.4x Marine 16 3,179 13.5% (8.1%) 1.2x 9.9x Rail Services 11 14,128 8.3% 9.5% 1.8x 11.0x Trucking 17 1,228 6.1% 11.0% 1.2x 9.9x 1 Compared with values at March 31, 2017 Sector Summary in Millions USD (converted where necessary) 2 LTM Multiples