TransForce gains major U.S. foothold with US$558M truckload acquisition
|National Post 28 Oct 2016 at 12:52|
TransForce Inc. will significantly increase the size of its U.S. trucking business through a US$558-million acquisition of XPO Logistics Inc.s truckload division, opening the possibility of a future corporate split and U.S. stock listing.
Montreal-based TransForces stock jumped more than seven per cent Friday on news of the acquisition, which includes 3,000 tractors and 7,500 trailers. Chief executive Alain Bdard said nearly half of the companys total revenue will now come from its U.S. business and its truckload segment.
With this transaction we take big steps forward on two major strategic objectives that weve been talking about for some time now: increasing our U.S. revenue and gaining critical mass in the U.S. truckload (market), Bdard said Friday on a conference call with analysts.
We believe that achieving these two goals can open the door to other corporate and capital-market transactions that can unlock shareholder value much further.
Those transactions could include a U.S. stock listing and a separation of TransForces truckload business shipments that take the entire space of a truck from its less-than-truckload, logistics and package and courier businesses.
We dont want to split the company, but if push comes to shove, down the road maybe (TransForce) will stay as a truckload company and maybe the other part will be separate because of valuation issues, Bdard said.
He added that a U.S. stock listing is another possible way to unlock shareholder value.
With this (XPO) acquisition, a bigger portion of our revenue will be dependent on the U.S. economy, which is still the No. 1 in the world, he said.
The deal, which has already closed, will increase the size of TransForces total truckload business by about 35 per cent, according to Jason Seidl, an analyst at Cowen and Co. It will also give TransForce access to the cross-border Mexican trucking market for the first time.
The acquired business generates about 30 per cent of its revenue from cross-border/domestic Mexico and assuming no wall is built between the U.S. and Mexico, we would expect this revenue to grow in the coming years, National Bank analyst Cameron Doerksen wrote in a note to clients.
The combined business is expected to generate annual revenue of approximately US$530 million and EBITDA of US$115 million this year. Doerksen estimated the deal will add 41 cents to TransForces earnings per share in 2017, and raised his price target to $33 from $29.
Desjardins analyst Benoit Poirier praised the deals attractive price tag which was less than 4.85 times EBITDA, well below the sectors historical multiple of 6.5 times.
The U.S. truckload sector has been battered by weak demand from shippers due to high inventories and disruption from a shift towards e-commerce. This has weighed on truckers earnings and pressured their share prices.
The truckload market is in a very, very difficult position in the U.S., Bedard said. You buy on bad news. Thats what Ive done.
Topics: News , Transportation , Mergers and Acquisitions , TransForce Inc. , Truck Transportation
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