PRESCOTT, Ont. — As reported earlier, Mullen Group Ltd. and Kriska Holdings Ltd. have decided to combine some of their operations. In essence they are forming a new holding company (Kriska Transportation Group) which will oversee the activities of both Kriska and Mullen-controlled Mill Creek Motor Freight LLP.

To find out more about the deal, Carolyn Gruske spoke with Jonathan Wahba, chief operating officer of Kriska Holdings about what the arrangement will mean for employees, customers and the Canadian transportation market.

Jonathan Wahba: This is a very exciting day for us at Kriska.

TN: How long has this been in the works?
JW: We’ve been talking with the Mullen Group for at least three months, probably closer to four or five.

TN: What brought you into discussion with the Mullen Group?
JW: There are two factors that drove us to the deal we announced today. The first is the driver shortage. What we’re experiencing in Eastern Canada and Ontario, I think people are experiencing across the rest of Canada and North America. It is very difficult for motor carriers to grow organically. The driver shortage isn’t some event that is going to happen to us in the future. It is happening to us today. Even the largest most sophisticated, best run carriers are struggling with growing organically, so growing inorganically through acquisition is something we need to consider. The market, especially the full load, cross-border market is tight. It’s favourable for motor carriers. Many days there is more freight than there are trucks. That has finally, after many years, given us some leverage with shippers. Having a fleet or a larger fleet available to move that freight is desirable to us.

The second big factor is the consolidation that is going on in the industry. Between TransForce-Contrans, Vitran, Manitoulin, Celadon-Yanke, there have been more transactions in the past year than there have in many years prior. We see that as a trend that is going to continue. Our concern is if we don’t participate in that trend, at some point everybody will get bigger around us. Down the road we know we will compete with the big guys for customers, for drivers, for suppliers, and economies of scale make sense in the asset-based transportation business. So the driver shortage and consolidation are the two big triggers for us.

TN: So you feel like you’re being forced to grow and expand?
JW: It’s more that we feel if we don’t, over the long term, the big, sophisticated shippers will have fewer large options, and if you’re a big, sophisticated shipper, it’s our opinion that it’s easier to manage a couple large suppliers of transportation than many small ones. In the big picture of North American commerce, Kriska is a mid-sized Canadian carrier, but we’re small in the big picture. When we compare ourselves to the massive US carriers—the Swifts and Schneiders and Werners of the world—and even in Canada, the Challengers, the TransForces and the Bisons, we look around and think at some level, the closer we are in size and scope to those larger carriers, the better off all our employees and all our customers will be.

TN: What happens to Kriska Holdings?
JW: This deal will close October 31. Prior to that date, so today, there are two companies and the brands we all know well: Kriska and Mill Creek. Kriska today, our legal name is Kriska Holdings Ltd. We have created a new company called Kriska Transportation Group. It’s going to be the holding company for Kriska, for Mill Creek and for any future acquisitions. We kept the Kriska name because it’s a name people in Eastern Canada are familiar with.

TN: So all of the trucks, the property and the assets will be transferred to Kriska Transportation. And that’s for both Kriska Holdings and for Mill Creek.
JW: That’s right. We’re going to operate Kriska and Mill Creek as separate, standalone companies. All the employees will stay under Kriska as they are today, but the holding company will be the parent company, Kriska Transportation Group that will be 70% owned by Mark Seymour and 30% owned by the Mullen Group.

TN: Is there any cash being transferred, or is it just assets?
JW: This is a non-cash transaction on the trucking side. The only part of the deal where there is a cash transaction is on the real estate. The properties we have at Kriska today in Mississauga and Prescott are owned by Kriska. We have sold those properties to Mullen. We’ll become a long-term tenant. We’re not moving. We’ll just become renters rather than owners. This deal is quite unique in that typically when there are acquisitions in Canada, Company A buys Company B and that’s it. This is certainly a different model.

TN: How will it work with this different model? The companies have different management styles and different approaches. Even if you are similar, there will be differences.
JW: The current Mill Creek management group will stay in place. In the old world, the Mill Creek managers reported up into the Mullen executive team in Calgary. We’re going to keep that model in place where the current Mill Creek management team stays intact, and they’re going to report into the Kriska Group. The current Kriska management team stays intact.

We plan to operate as two decentralized organizations. We think that model makes sense. Mill Creeks is well run. They are a safe, compliant and financially stable organization. This is not a case of buying a company that needs any fixing. It’s buying a company that is well run and we want to keep it intact. Of course where there are synergies, if we can do better as a group purchasing things together, if we can do better sharing customer freight back and forth then we’ll do those things down the road. This would not be an instance where we are buying an organization with the intent to cut the costs and make it better.

TN: That’s a common thing for companies to say, and then down the road they change that message.
JW: We thought long and hard about this. This is the largest acquisition Kriska has completed in its 35-year history. We have to get it right. Throughout our due diligence process we were really impressed with Mill Creek. It’s a quiet, stick-to-your-knitting sort of company. As part of the Mullen empire, to piece together how it is doing from the outside, it’s very hard to figure that out, but during the due diligence process we had full access to the inner workings of the organization and they are one of the safest motor carriers in Eastern Canada, they have very low driver turnover, and a long-term, stable management team. A lot of the things are very similar to Kriska. We think if we went in there and put Kriska signs up—put up red signs and took down blue ones—that would be very disruptive to the organization. And it won’t make them any better. They have two vice-presidents who run their organization and they are both long-term employees, and they know their business inside and out. Our goal is to work with them on how we can fine-tune. How we can address analytics on lane profitability. We think we are a little more sophisticated than they are in that regard. Those are some of the areas where we think if we share some of our knowledge and operational discipline in how we rate lanes and customers, we think we can help fine-tune the organization, but from a margin perspective, they perform very well.

TN: What happens when you buy more companies?
JW: We think consolidation will continue to occur, but we think we have a bit of a window in time right now in Canada where prior to the Contrans deal there were three big guys in Canada. There was Contrans, TransForce and Mullen. Assuming the Contrans deal goes through, we’ll be down to two. We believe, because TransForce over the last six months has spent close to $1 billion between Vitran, Transport America and Contrans, that they will be busy managing those businesses. We think we may be able to offer an alternative to business owners who are considering getting out of the business or who are looking for another alternative because they feel they are too small to compete. We think perhaps our decentralized business model will be interesting to them.

TN: So you will keep that decentralized business model for future acquistions?
JW: Absolutely. And if you look at the Mullen Group, and obviously their focus is in Western Canada and it is diversified between transportation and oil and gas services, that has been their model and it has worked really well for them. One of the great things for Kriska is that with Mullen as a shareholder, we have access to a very large, very well run and very well capitalized organization. So if other opportunities present themselves, we think we have a good model, a good story and a great partner in Mullen, to welcome other folks into our group.

TN: Why was Mullen willing to transfer Mill Creek to Kriska?
JW: Murray (Mullen) has put it in a position where he believes it will be most successful in terms of its ability to grow. Mullen’s footprint is largely in Western Canada. Ours is here in Eastern Canada. My belief is he was of the opinion that for Mill Creek employees and Mill Creek customers, getting together with an organization like Kriska will lead to a greater chance of that organization being the most successful it can be.

TN: When announcing this deal, there was a lot of emphasis on both transportation and logistics. Does this mean you are interested in warehousing and 3PL operations?
JW: That was a reference that both Kriska and Mill Creek have non-asset-based divisions. Both of us have a brokerage operation where we broker either overflow asset freight or pure 3PL freight. Kriska is in the warehousing business. It is a small piece of our business. In Prescott, we have a 280,000 sq.-ft. warehouse. It’s full, and it’s well-served. It’s a small piece of our business, but it’s complimentary to the trucking side. We included that in there to recognize it’s part of both companies, so those employees recognize that this deal applies to everybody. Also if, down the road, other opportunities with other organization come up that are involved in that space that we’d certainly like talk to them.

TN: Do you have any particular style or size of company that you’d prefer to acquire?
JW: We don’t have any preconceived notions. There is no box to check at this point for who would be the ideal fit. We would like to look at, and what we’re hoping to see from this transaction is companies that are safe, that have great safety scores, companies that have low driver turnover, and companies that are financially strong or financially stable. Kriska and Mill Creek both check those three boxes, so obviously if there are other organizations that we assess to be similar in those attributes, those are the ones we’d be interested in looking at further.

TN: How do you think your customers will react to this change?
JW:  We think our customers will be very pleased. Kriska is primarily a cross-border carrier—80% of what we do is to the US. Mill Creek is about the same. What we hear from our US-based Fortune 500 customers is what they are most concerned about is capacity. Last winter was rough on everybody. As we’ve gotten back into the fall peak, we have segments of the market where we are oversold and turning down freight. For shippers, if motor carriers are turning down freight, and they’re having to go deep on their list of carriers, obviously their service levels are suffering and their costs are going to go up. While we are certainly near the biggest carriers out there, we think this deal will be well received by our customers, because for our core customers who want an asset-based solution, who don’t want a brokerage-based solution, we can come to them and say the new Kriska Transportation Group is much larger today than the two parts were yesterday. From a capacity perspective, as we think about fall peak, the Christmas rush, winter storms when capacity will be very, very tight, we think our customers will be pleased we have more capacity to offer them.

TN: When we spoke about capturing market share through acquisition, we didn’t talk about where you hope to find companies. Are you looking mainly in Ontario or across Canada or the US?
JW: We’re not going to preclude anywhere from the discussion. If the market takes this deal and puts out the welcome mat, and wants to come chat with us, we will certainly entertain conversations from all corners. Our focus is certainly in Ontario, and our area of expertise is certainly border crossings. To stray too far from the full load, cross-border market, I think is something we’d be open to looking at, but the more likely scenario is we’re going to attract people to the conversation that have businesses that are similar to ours.

TN: Are you going to have enough staff and manpower to look at new acquisitions?
JW: It takes a lot of time. It can become a distraction from running the business. Over the past 10 years, Kriska has done three or four acquisitions. So we do have some knowledge in-house. But really, if we look at deals that are this size or larger in the future, that’s where Mullen lends a hand to us. They are a very robust organization when it comes to identifying and assessing and valuating companies. That’s what they do very, very well, and that’s something that as a 30% owner, we know they will be happy to help us with.

TN: What have I not asked you about this deal?
JW: We’re really excited. This is the largest deal we’ve done in the company’s history. We’ve got what we believe to be one of the best run transportation and logistics companies on the continent as our large minority shareholder, so that’s really exciting for the company and our employees.