A couple of years ago, Calyx Transportation Group partners Richard Muir and Rob Donaghey found themselves at a very enviable crossroads — their group of companies had outgrown them and they were casting about for a solution to position their enterprise for the future.
Since Donaghey joined Muir at Muir’s Cartage back in 1990 and the two became partners, they had grown their various businesses from $10 million a year in sales to $245 million in 2005 — largely on the back of some shrewd acquisitions in the form of National Fast Freight, Nesel Transport, and Euroworld Transport System, as well as a lot of organic growth.
“It was really a case of two guys who had grown the company to a very serious size,” says Calyx CEO Rob Donaghey. “We needed to set the company up for future growth — it had outgrown what two people wanted to do.”
Muir and Donaghey started talking with the Chicago-based Wynnchurch Capital Partners, and by May 2006, they’d announced that the equity firm was buying a 55-percent stake in Calyx, with the two original partners holding the remaining shares as well as retaining a leadership role in the company.
“The rationale was we’d grown the group from $10 million to $245 million just the two of us, and our net worth was completely wrapped up in the companies, which any financial planner will tell you is insane. It just seemed like a good time to address our personal plans going forward to diversify our holdings a bit — and set Calyx up for the future. The private equity scenario allowed us to put Calyx on a platform that provided for stability, long term growth, and certainly there’s money there if we want to do some acquisitions.”
So what exactly is Calyx Transportation Group? And how did they get to be so big?
First off, about that name. A calyx is a botanical term for the part of a flower that holds the bloom before it opens — a good metaphor for a holding company. Plus it’s something that holds the promise of growth — the bloom — and it’s green, the color of money.
If you’ve never heard of it, that’s because Muir and Donaghey haven’t exactly been shouting it from the rooftops. They’ve purposefully been very low-key in their various acquisitions over the past 15 years. In fact, this is the first story that’s been written about the company.
You’ll definitely know some of its component companies: National Fast Freight, the domestic intermodal freight forwarding outfit; Nesel, the specialized electronics/furniture/white goods hauler; and, of course, Muir’s Cartage, the 118-year-old trucking company that carries goods for Home Depot and Future Shop, among many others.
Perhaps lesser known, in the trucking world anyway, are the company’s container freight specialists: Euroworld Transport System Canada Inc, an international freight forwarder specializing in liquor products; and Creditstone Container Services Inc., an ocean container lifting and storage company. And then there’s Calyx’s most recent concern: Indis, the group’s supply chain management company.
The main driver of Calyx’s 19 percent-a-year growth has been National Fast Freight, which grew from zero as a startup to $110 million a year.
“It’s definitely the largest subsidiary in terms of revenue,” says Donaghey. “It’s our domestic intermodal freight forwarder, partnering with both CN and CP.”
Started in 1991, it’s grown to be a significant player in domestic freight forwarding and is CN’s largest domestic freight forwarder out of Toronto. It’s primarily an LTL cross-dock operation, serving Ontario and Quebec over the road, and the Maritimes and the West via intermodal.
Muir’s Cartage and Muir’s International, the company’s north-south LTL hauler, is also a significant part of Calyx’s revenue. It’s the largest asset-based company, “and for many years it was looked upon as our main company because it was the original company,” says Donaghey.
It’s also the group’s dedicated carrier company, handling freight for retail giants like Home Depot and Best Buy/Future Shop as part of Muirs’ Core Carrier Program — a program that builds a supply chain structure around the needs of clients.
In Home Depot’s case, Muir’s reacted to a freight congestion problem at retail outlets by devising racking kits for its trailers servicing Home Depot outlets. The racking allows for more freight volume per trailer per store, reducing congestion and improving efficiency.
“We’ve been blessed by the fact that we have Home Depot and Future Shop as customers,” says Donaghey. “Home Depot is very dynamic — it now has 145 stores. That’s dynamic growth for us that comes from partnering with a good client. And that comes from a situation of good service, efficiency, and trust. We like to think we played a role in assisting their growth, and clearly they’ve played a major role in assisting our growth.”
And Nesel, one of Muir and Donaghey’s first acquisitions back in 1991, has also proven to be a steady performer for the group. It specializes in hauling electronics, and furniture in Ontario, Quebec, and the Maritimes; and has recently started carrying a lot of white goods to make up for losses in furniture business thanks to Chinese imports.
Another chunk of Calyx’s growth has come from ocean freight, in the form of Euroworld Transport Systems. Purchased in 2002, the international freight forwarder deals primarily in wine and spirits, servicing Canadian liquor control boards, as well as Labatt, Molson, Diageo, and Sleeman. It has evolved to become one of the world’s foremost transporters of liquor in the world.
“We bought Euroworld to reach one more step out in the supply chain,” says Donaghey. “At that time our portfolio provided warehousing and distribution — we were acting as service providers to other third parties. So we purchased an outside international freight forwarder to try and go that extra step and obtain the control of freight from point of origin overseas right through to our own distribution system here in Canada.”
It’s also proven to be an effective growth vehicle for Calyx, accounting for close to $38 million of total sales — up from $7 million when it was first acquired. “We see it as one of our main growth vehicles going forward,” he says.
To date, there hasn’t been a lot of crossover between the various companies within Calyx, which Donaghey admits is an ongoing challenge for the group.
“That’s one of the reasons we established Calyx — because we had these silos,” he says. They were all individual companies with their own management teams, mode of operations and growth plans; and Muir and Donaghey were forever struggling to get the ‘siblings’ to work together. “We have thousands of clients that only use the services of one business. We’ve made some progress in that area but not enough — we need to educate our salespeople in our companies better, and we need to perhaps come out from under the barrel.”
One company that has benefited from using Calyx’s full reach has been pet-product supplier Hagen, the first client of Indis — Calyx’s supply chain management company.
Now servicing Hagen’s distribution needs in Canada, Indis devised a plan where Hagen freight is picked up from its suppliers in Asia using Euroworld. It hits the Vancouver port and is taken to Edmonton via National Fast Freight where it’s transloaded into National equipment for backhaul out of Edmonton and brought to Toronto to a warehouse managed by Indis. There it’s stored, pick and packed, and eventually put on a truck and delivered by Indis.
“In that concept we’ve touched freight four times,” says Donaghey. “Our margins don’t need to be as high if we were only touching it once, the total opportunity presented by our client is greater and we can offer the client a more cost effective solution.
“Currently, this is not the case with most clients. But long term, yes, we’d like to see that happen. I think we have a service offering where we can add benefit and cost efficiencies to our clients. But we need to break those cross-company barriers down and utilize each other’s services. That’s going to be a challenge for us until we get the culture of Calyx established as opposed to the culture of individual companies.”
Creating and promoting this cross-over is what Calyx is banking on for future growth, with much of it coming from the international side, where Donaghey thinks Calyx bring the most value.
“We have some very good relationships with the steamship lines but our biggest value-add is when it lands in the country. Anybody can be a freight forwarder and negotiate the price of a box from a steamship line; but when it gets into our infrastructure, we bring something nobody else has — physical assets on the ground,” he says. “I think the biggest thing that’s going to set us up for growth going forward in the next five years is our combination of strengths: we have a mixture of asset-based in Nesel, Muir’s and Muir’s International, we have asset-lite in National Fast Freight, and we have non-asset in Indis. So the combination and flexibility of those offerings allow us to look at a client and find the best solution for them.
Of course, Calyx is not immune to the challenges facing the transportation industry at large, namely capacity issues like the ongoing driver shortage and rail capacity constraints.
“Because we’ve had significant growth, I would say the primary challenges we’ve faced are issues related to capacity,” says Donaghey. In terms of rail, this translates into things like limiting train lengths at certain times of year, and the need to expand rail siding lengths. “We are constantly bumping up against the capacity limitations of our rail operations. And the same can be said for our international freight forwarding side — it’s really a commodity game and it’s based on trade lanes, trade patterns, currencies, and the capacity of ports.
“We’re hoping over the next five years some of these capacity issues will be resolved, though some are out of our control, like ports, steamship lines, and railways. Trade is growing, infrastructure is limited, so I think we’re going to be constantly faced with that over the next five years.”
Partnering with Wynnchurch should also be good for Calyx’s future. Muir and Donaghey are banking on the private equity firm bringing their life’s work to the next level, with financial expertise, greater access to lenders, an eye for potential acquisitions, and most importantly, corporate discipline.
“Private companies tend take on the mode of their operators, be it my style or Richard’s style or key people’s style. Now we’re starting to work very diligently on getting a corporate style, and that discipline is going to pay off. No matter how well you think you’re running the company, when you have a personal style there’s always going to be areas that you concentrate on, and other areas get sloppy. Wynnchurch provides more of a global perspective and causing us to be a more disciplined, and well governed.”
To go back to the Calyx/flower analogy, the Wynnchurch move is kind of like a shot of nitrogen to a flower — it can’t help but make the Calyx bloom bigger and brighter than before.
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