INDIANAPOLIS, Ind. — Celadon has honed an aggressive acquisition strategy in the US that the company now hopes to bring to Canada, which could present new opportunities for overleveraged fleet owners while potentially growing Celadon’s relevance in the domestic truckload market.
Senior executives at Celadon shared their bold growth strategy with Trucknews.com in an exclusive interview at the company’s Indianapolis headquarters.
Since 2002, Celadon has focused on acquiring carriers in financial distress, relieving ownership of their debt and paying “fair” value for trucks and trailers, which are then sold via Celadon’s own retail business. The company then takes on the majority of its customers and offers employment to any drivers who meet Celadon’s standards. Unlike most other acquisitions, Celadon pays cash so it doesn’t require bank approval and as a result, it can close a deal within days.
While the strategy capitalizes on the misfortune of others, it’s a shrewd tactic that has contributed to the carrier’s driver pool, customer base and ultimately its bottom line. And in most cases, owners of the company being purchased are pleased to be relieved of their personal guarantees, officials said.
The latest example of this strategy occurred just last week, when Celadon acquired troubled Teton Transportation of Knoxville, Tenn. Celadon chairman and CEO Steve Russell said his team first met with Teton on a Wednesday and had closed the deal the following Monday.
“We can act quickly,” he said, noting Celadon’s strong financial situation and substantial cash reserves. “Although there are large carriers based near Knoxville, one would have thought they’d be a natural buyer, but I’d assume they likely would have required bank approval, and you can’t get bank approval in five days. We acted quickly, purchased the tractors and trailers and bought their Knoxville facility.”
Celadon has retained about 80 of Teton’s drivers (it operated 180 trucks) and now has a facility in Tennessee from which to service a newly acquired customer base. Teton was in a desperate situation. Its CSA scores were abysmal and its insurance was coming due in early March. The only alternative to bankruptcy was to find a buyer – and fast. Russell admitted Celadon has become known as a “buyer of last resort,” but he makes no apologies.
“We buy the tractors and trailers, take over the customers and sell the tractors and trailers at fair value. We sell them as quickly as we can and pay the money to the underlying lenders, or to the owner if they own it. They’re released from their personal guarantees and they walk away happy,” Russell explained.
Ironically, the scheme was developed when Celadon itself was in a state of desperation. In 2002, 70% of its business came from the big three Detroit automakers.
“When you do a lot of business with one customer, you don’t own the customer, the customer owns you,” Russell said. “Our stock was at $2, we were on the balls of our ass, we owed a ton of money and were on the verge of bankruptcy. We decided we couldn’t hire 2,500 salespeople to sell more customers so we decided we’d make acquisitions. We couldn’t buy something that was six times EBITDA, because we didn’t have the money; we had to buy weak companies.”
Since 2002, all but one of the 11 trucking companies Celadon has acquired have been in a state of financial duress. The company has picked up the pace in recent months, finalizing three acquisitions in 2011 and the Teton deal just last week. An investment banker was used in just one of the 11 acquisitions, Russell noted, and that’s because Teton had already solicited its services.
The strategy is only effective when fleets are in a dire position financially; and in the US, at least, there is no shortage of such fleets.
“We’re not going to pay six times EBITDA, but it works for anybody who just wants to get out,” said Wayne Deno, vice-president of operations with Celadon. When asked if that’s the new reality for trucking companies looking to sell, he said: “I don’t think that it’s new, but it’s a reality.”
Most of the ownership groups that have accepted Celadon’s terms have been pleased with the outcome, Russell added. Deno said it relieves them from the burden of having to offload their equipment, saves them from the shame of filing for bankruptcy and gives them the peace of mind in knowing most of their employees will be offered continued employment. Most drivers who meet Celadon’s criteria stay on, Russell noted, and in most cases they’re trading in older tractors for brand new trucks – the average age of Celadon tractors is just 1.6 years.
Celadon is now setting its sights on Canada, where it hopes to find similar opportunities to grow its Canadian fleet of 250 trucks. When asked what excited him about the Canadian market, Russell launched into a rendition of O Canada – in English and French.
“There have got to be companies in Canada where the owner is on personal guarantees, things are tough, fuel is going up, whatever,” Russell said.
Deno added the company already has a facility in Ontario and needs to add scale to make it more profitable.
“It’s a great place for us to try to grow a little bit,” he said. “Rates in and out of there seem to be decent, we have a terminal up there, we have fixed overhead, and we have allowed it to shrink to the point where we frankly need to put more trucks on up there to make it a good profitable business for us. Trying to grow intra-Canada business internally, you have to find customers from Montreal to Toronto and at the same time find ones going back. When you do it through an acquisition, that all comes pre-packaged and as long as you can retain those drivers, you can do something.”
The perfect match for Celadon, Deno said, would be a fleet with a southern Ontario base and a terminal in Quebec.
Celadon execs would like the company to become involved in Canadian acquisition discussions, which typically involve publicly-traded mega-fleets TransForce and Contrans, and few others. When asked if Celadon was approached about the recent MacKinnon Transport van division sale, which ultimately went to Contrans but at first glance could have been an ideal fit for Celadon, Russell said “No.” Would he have liked to have been involved? “Sure. But I don’t think the typical Canadian company knows us as anything other than Celadon Canada; 250 trucks isn’t tiny, but it’s not big.”
While Canadian fleets haven’t been knocking down Celadon’s door looking for buy-outs, Deno said “We like to think they think of Celadon Canada as a very small fleet and don’t think of us as a potential acquirer.”
That could change, however, if Celadon gets its way, and the company seems willing to throw the full resources of its American parent behind any opportunities that come up north of the border. Russell and Deno agreed they wouldn’t hesitate to take on fleets with up to 300 tractors, assuming they’d retain 200 of those drivers. And they also don’t plan to stop at one such acquisition if the opportunity is right. Essentially, Celadon could double or triple its Canadian capacity in short order if it succeeds in finding companies willing to accept its terms.
The repercussions for the industry are significant. Fleets on the brink of bankruptcy now have a new option, one that could free owners of significant debt loads and give them a clean break from the industry. The limited pool of potential buyers in Canada – consisting primarily of TransForce and Contrans – now has a new, well-financed participant with which to contend. And if Celadon’s str
ategy is successful, it could become a much bigger player in the domestic Canadian trucking market. The sharks are circling.
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