This summer's most sizzling acquisition announcement -the purchase of the St. Thomas, Ont.-based Walker Group of companies by MacKinnon Transport -is getting two thumbs up by industry analysts who bel...
This summer’s most sizzling acquisition announcement -the purchase of the St. Thomas, Ont.-based Walker Group of companies by MacKinnon Transport -is getting two thumbs up by industry analysts who believe it to be the start of further consolidation in Canada’s beleaguered truckload sector.
The deal, announced at the end of August, creates a combined entity that will operate out of MacKinnon’s head office in Guelph, Ont., where the company will now manage more than 1,300 pieces of equipment and employ a workforce of 420 people. The Walker Group consisted of LE Walker Transport and Mid America Freight Systems, both major players in the dry van and flatbed marketplaces in North America. The Walker Group was led by the highly visible Julie Tanguay, current chair of the Ontario Trucking Association. Tanguay will now have joint ownership in the combined entity and will take on the newly created role of executive vice-president of sales, heading up sales efforts for the combined fleet.
“I think this is a very interesting play for MacKinnon and Walker. I think it’s the right move and I expect more consolidation in the TL sector,” said Elian Terner, a director of investment banking with Scotia Capital.
This also represents a different type of deal than what the industry has seen in the recent past. A lot of the mergers and acquisitions the market saw prior to the recessions involved moves into new market segments for the carriers involved. Over the past year, with access to credit tightening significantly, the activity has focused instead on small opportunistic “tuck-in” type deals.
This one is really more of a consolidation play in a weaker segment of the industry. “The TL sector has taken a big beating and I’ve got to think TL owners are thinking that to be ready for another business cycle, they’re going to have to pair up with someone. But in terms of attractiveness of TL, it’s not really attractive to any other type of carrier. If a guy is asset-light, he’s not interested in TL; if he’s specialized, he’s not interested in TL,” Terner said. “The TL guys are going to have to solve it on their own and I think MacKinnon and Walker are doing the right thing in being a first mover here.”
Well-known industry consultant Dan Goodwill, a former trucking company executive himself, also praised the deal as a good move with a real chance for success.
“Everything that I read and hear is that the economic rebound is going to take three to four years to get back to where things were. It’s supposed to be a long and bumpy road and slow building up one’s business,” Goodwill said. “If MacKinnon and Walker can retain the revenue, rightsize the business, drive some synergies, and the financials of the deal are solid, this would be a good move.”
Tanguay and Evan MacKinnon, who continues as president and CEO of MacKinnon Transport, believe the acquisition provides the new entity with several advantages as it continues to deal with the current downturn and prepare for the eventual economic recovery, as well as being able to offer new benefits for shippers.
Both carriers are involved in transborder hauls. But Walker’s strength was greater in southbound freight hauls to the US while MacKinnon was stronger in their northbound runs into Canada.
“We are both irregular route TL carriers. We get in places where we are not there every day. And so we rely on freight brokers quite often to reposition our trucks. When we start mixing their customers with ours, there will be less reliance on freight broker freight going forward and we will be able to close up some empty miles. Even 1% fewer empty miles is three-quarters of a million dollars to us,” MacKinnon told Fleet Executive.
Walker’s St. Thomas terminal will continue to operate in the short term, but eventually (likely by year end) will be merged into MacKinnon’s Guelph operation. All drivers and owner/operators have been retained, but there will be some savings realized in combining support staff.
Both companies deal with some large shipper accounts. The Walker Group has some large food products accounts while MacKinnon deals with some large building materials accounts. Both companies haul liquor, but for different accounts. Adding Walker’s more than 500 pieces of equipment to MacKinnon’s 800 creates a significant amount of capacity, better geographical coverage, and new capabilities.
Tanguay says bringing together Mac-Kinnon and Walker strategically positions the beefed-up new entity in a way that will help it respond rapidly to changing markets and customer requirements. And she adds the customer bases of the two companies were quite diversified with very little duplication of accounts (5% or less).
Terner concurs: “The TL guys service the big box guys and the big box guys are elephants and they like to dance with elephants. The more scale and concentration you can present, the better positioned you will be for the upswing,” Terner commented.
MacKinnon sees plenty of opportunity for growth within existing Walker and MacKinnon accounts, which are operating at about 60% of normal freight volumes today after two years of freight declines. In addition to better geographic coverage and more capacity, Walker clients will also benefit from access to MacKinnon’s warehousing offerings.
But MacKinnon believes the greatest benefit to customers stemming from the transaction will be the ability to grow in a financially sound manner.
“There are more and more customers concerned these days that if a company has a financial problem, where is their freight going to be when that happens? As far as a customer looking to develop a relationship for the long term, this is going to make us very financially strong,” MacKinnon said.