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 as of March 31, 2018 Data sourced from S&P Capital IQ on March 31, 2018
www.g2cap.com 4 Transportation & Logistics Selected Industry Deals Q1 2018
The first quarter of 2018 has been active, with a total of at least 45 deals announced and closed. Driving factors of deal flow were: 1) capacity expansion to address the ELD mandate and driver shortage, 2) geographic expansion, 3) addition of new capabilities, namely the in E-Commerce & final mile segments, and 4) an overall positive macro-economic environment. Below are select few transactions completed during the period.
. Knight-Swift Transportation acquires Abilene Motor Express (March 2018) – Knight-Swift Transportation Holdings, the largest truckload carrier in the United States, acquired Abilene Motor Express, a trucking company with approximately 400 trucks and over $100MM in revenues. This acquisition marks Knight-Swift’s first acquisition since its blockbuster merger executed in the third quarter of 2017. According to SJ Consulting research, the merger combined the number 1 and 2 largest carriers resulting in a company with just over 2% market share of the U.S. Trucking market, of which the top 25 carriers hold 13%.
. St. George Trucking & Warehouse acquires Freight Force (March 2018) – St. George Logistics, a specialty third party logistics and trucking provider and portfolio company of Windpoint Partners, acquired Freight Force, a first and final mile delivery services provider. The acquisition allows St. George to leverage local and regional motor carriers in over 52 metro areas as well as service more than 2,200 freight forwarders and third party logistics providers. The investment is just one example of trucking and warehousing providers expanding capabilities into the final mile segment to address the significant growth and opportunity in E-Commerce sales.
. American Industrial Partners acquires Rand Logistics (March 2018) – American Industrial Partners, a global private equity firm with over $4.1B in AUM, acquired Rand Logistics, a provider of bulk freight shipping services throughout the Great Lakes Region. The acquisition follows a pre- packaged Chapter 11 Plan which leaves the company with a de-levered balance sheet and lower interest expense obligations. American Industrial Partners expects Rand to continue its market leading position in providing shipping and other logistics services of critical raw materials within the Region.
. Universal Logistics Holdings acquires Fore Transportation (February 2018)– Universal Logistics Holdings, an asset-light provider of customized transportation and logistic solutions, acquired Fore Transportation, a Chicago-based intermodal logistic solutions provider. The acquisition allows Universal Logistics to add over 150 trucks and $32MM in revenues. Fore’s Chicago operations include a 28-acre terminal adjacent to the Canadian national Railroad and 24/7 secured trailer and container storage for 1,100 units with cross-docking, maintenance and repair, and refrigerated-unit fueling services.
. GlobalTranz acquires AJR Transportation (January 2018) – GlobalTranz Enterprises, a tech- enabled freight management solution provider, acquired AJR Transportation, a Texas-based freight brokerage and logistics firm. The acquisition allows GlobalTranz to expand and strengthen its operations in the Southwest. Prior to the transaction, AJR Transportation used GlobalTranz as a freight agent for five years, providing back-office support with a robust technology platform. GlobalTranz has been highly acquisitive as AJR Transportation represents its fifth acquisition in 12 months. Other acquisitions include: Apex Logistics (Utah-based), Global Freight Source (Milwaukee-based), Logistics Planning Services (Minneapolis-based), and Worthington Logistics (Richmond-based).
Source: Transportation Topics, S&P Capital IQ
www.g2cap.com 5 Transportation & Logistics Market Indicators
Market Index Trends
The Transportation sector has recovered considerably over the last 12 months, outgrowing the S&P500 over Q1 of 2018.
130.0%
110.0%
90.0%
70.0%
Index 50.0%
30.0%
10.0%
(10.0%) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 '12 '12 '13 '13 '13 '13 '14 '14 '14 '14 '15 '15 '15 '15 '16 '16 '16 '16 '17 '17 '17 '17
S&P 500 Transportation (Industry Group) S&P 500
Data sourced from S&P Capital IQ on March 31, 2018 Last 5 Year EV / EBITDA Trend by Industry
Though still tracking below the S&P 500 EV/EBITDA multiple average, the industry has begun to slowly increase its averages since Q4 2016, led by the Logistics segment followed by Marine and Rail segments. The fragmented trucking sector has seen an increase linked to rising prices and capacity constraints.
15.0x
10.0x
EV / EBITDA EV 5.0x
0.0x Q1 '13 Q3 '13 Q1 '14 Q3 '14 Q1 '15 Q3 '15 Q1 '16 Q3 '16 Q1 '17 Q3 '17 Q1 '18 S&P 500 Logistics Marine Rail Services Trucking Data sourced from S&P Capital IQ on March 31, 2018
www.g2cap.com 6 Transportation & Logistics Selected Ongoing G2 Projects G2 has a robust backlog of mandates ranging across its sell-side, buy-side, capital markets, and restructuring service offerings.
. Project Panther – G2 is currently advising a Project Panther leading integrated supply chain and logistics provider supporting both Canadian and U.S. customers in a Sell-Side sale of the business. The Company provides warehousing, distribution, dedicated contract carriage, Third Party Logistics and as well as international and domestic transportation Supply Chain Distribution management solutions
. Project Intersect – G2 is currently advising a Project Intersect tech-enabled hardware solution in a growth equity financing. The product makes trucks more efficient Growth Equity Financing and will be integral in supporting centralized fleet management and the “connected truck”. The Third Party Logistics and Company is seeking new investors to support the Freight Management business into it’s next stage of development.
Project Twilight . Project Twilight – G2 is currently advising a logistics, brokerage, and freight management Strategic Alternatives company on a review and assessment of its business Assessment and strategy as well as how the Company compares against its peer group. Logistics, Brokerage, and Freight Management
www.g2cap.com 7 G2 Overview Ron Lentz, Managing Director G2 Capital Advisor’s Transportation & Logistics industry Practice Leader, Ron Lentz, brings 25+ years of C-level leadership and operating experience to the Transportation & Logistics practice group.
Company Title Role
Restructured operations of international freight CEO forwarder and acquired 11 companies in 18 months before selling the parent at 4.5x premium. Doubled the size of company sales and EBITDA EVP in 18 months before selling at a 2.5x premium.
Restructured and recapitalized the company, COO before selling for $400 million. Restructured platform company for a private COO equity group before selling for $658 million – representing a 6x return on initial investment. Co-founded the business in 2000, building the company from start-up to $150 million in CEO revenues in 18 months then sold to private equity firm in 2002. Ron Lentz Built Ryder’s 3PL division from $100 million Practice Leader EVP revenues in 1988 to $2.4 billion in 1999. Transportation & Logistics G2 Overview Christopher Casteleyn, Vice President
G2 Capital Advisor’s Transportation & Logistics industry Vice President, Christopher Casteleyn, brings 13+ years of experience in finance, specializing in providing advisory services for merger, acquisition, and divestiture transactions as well as strategic assessments. Christopher has significant experience executing cross-border and private company transactions within the Transportation & Logistics practice group.
Company Title Role
Involved in all aspects of M&A and divestiture Antares processes including sourcing, positioning, and International VP negotiating transactions. Executed over $1B Partners, Inc. in total transaction value over 5 years.
Specialized in a variety of finance and technical accounting roles including Strategy, Operational Finance, SEC Reporting, Internal FP&A Audit, Sarbanes Oxley Compliance, Financial Chris Casteleyn Planning and Analysis and Treasury / Cash Vice President Management. Transportation & Logistics
www.g2cap.com 8 Reference G2 Team
Ron Lentz, Managing Director Jeffrey Unger, CEO [email protected] [email protected] 630.362.8317 617.918.7929
Christopher Casteleyn, Vice President Jake Cunnane, Analyst [email protected] [email protected] 415.792.6461 704.616.2016
Term Definition
Total revenue from the sale of goods and services rendered during the reporting period, in normal course of Revenue business, reduced by sales returns and allowances, and sales discounts. For banks, this item is defined as net interest income after loan loss provisions
Earnings before interest, taxes, depreciation, and amortization. Calculated as Revenue – Expenses, excluding EBITDA interest, taxes, depreciation and amortization
Market value of a company using most recently reported basic weighted average shares outstanding. Market Cap Calculated as Market Price (as of period end) * Basic Weighted Average Shares Outstanding
Sum of the carrying values as of the balance sheet date of long-term debt with a maturity beyond one year or Long-Term Debt the normal operating cycle, if longer
Net Debt shows the company’s overall debt situation by netting the value of debts with cash and other similar Net Debt liquid assets. Calculated as Total Debt – Cash & Cash Equivalents and Short Term Investments
Enterprise Value represents the combined economic value of a company as of the most recent fiscal year end. Enterprise Value Calculated as Diluted Market Capitalization + Total Debt + Minority Interest + Preferred Stock – Cash and Short Term investments
A valuation ratio of a company stock price compared to its per share earnings. Calculated as Market Price / P/E Earnings per Share for the last annual period
Tangible Book Value Total Shareholder’s Equity – Goodwill and Intangible Assets
For more information about G2, please visit: www.g2cap.com Our corporate headquarters is located at: 535 Boylston Street, 11th Floor, Boston, MA 02116 Boston | Chicago | Indianapolis | Naples | San Francisco
The information included in this Presentation is not a complete analysis of all material facts regarding any company, industry, or security and does not constitute investment advice. Opinions expressed or implied by the materials here presented reflect only the judgement of its author as of the date of the Presentation and is subject to change without notice. The information in this Presentation has been obtained from sources which G2 generally considers reliable, but we make no representation or warranty, express or implied, as to the accuracy or completeness of any information herein. This Presentation has been prepared for informational purposes only and upon the express understanding that it will be used only for the purposes set forth in the Section captioned G2 Overview above. G2 expressly disclaims any and all liability which may be based on such information, errors therein or omissions there from. Securities offered through Western International Securities, Inc. Member FINRA & SiPC. G2 Securities and Western International Securities are separate and unaffiliated entities.
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