As the Class I railroads implement precision scheduled railroading, the focus is on ensuring the network runs smoothly and efficiently. While the railroads still have maintenance crews, some companies are taking advantage of the industry’s openness to outsourcing the everyday maintenance work.
That’s why Auxo Investment Partners, a Grand Rapids, Michigan-based private equity firm specializing in manufacturing, industrial and transportation investments, has acquired two companies that provide railroad maintenance and mechanical services to the freight railroads.
These two new acquisitions are Ferrovia Services, an Auburn, Alabama-based provider of vegetation management along railroad infrastructure, and Genesis Rail Services, which provides maintenance of way, mechanical and construction services and is based out of Bluefield, West Virginia, and Roanoke, Virginia. Auxo announced its acquisition of Genesis last month and its acquisition of Ferrovia on Thursday.
Auxo says its goal is to integrate the two companies under one platform as a way to cross-sell services and improve offerings to existing customers.
PSR has “changed the mindset of the railroad. You have to operate on time. You can’t operate on delays,” said John McPherson, an operating partner with Auxo who advised the company on the Ferrovia and Genesis acquisitions. McPherson is a rail veteran who started his career at Santa Fe Railroad before working at Illinois Central Railroad and Florida East Coast Railway. He also sat on the board of directors of CSX (NASDAQ: CSX).
“The railroads are more focused on preventative maintenance, where if something does happen, it gets attention quickly. So there’s a greater sense of urgency to keep everything operating and on time,” McPherson said in an interview with FreightWaves.
As the railroads get smarter about PSR, they realize the challenges in trying to do and be everything, according to McPherson. Furthermore, maintaining the track and the rolling stock all fall on the expense side of the railroad. What Auxo will be able to do with these two acquisitions is provide the skill set and the special equipment for the railroads as a way to supplement their rail maintenance programs, he said.
“It’s just like, you’re not going to build a church just for Easter Sunday. In the same way, you’re not going to have maintenance people everywhere with the skill level that’s needed on a day-to-day basis,” McPherson said.
Cody Harman, president of Genesis Rail Services, agreed with McPherson’s observations of the railroads’ trend to turn to outside contractors for maintenance and other services.
“It’s just a really fantastic time to be in this business and also to facilitate that growth,” Harman said in an interview with FreightWaves. “The railroads have become even more vital every day in moving products and goods across the country … [and] there’s a lot of opportunity for us to continue to grow and expand our service lines with the nation’s railroads.”
Although Genesis’ reach has mostly been within the eastern U.S., Harman sees growth opportunities throughout the continental U.S., including for the Midwestern and Western railroads. The company also provides maintenance and construction services for corporations with rail assets.
Ferrovia, which provides regulated vegetation management, inspection and abatement services to the freight railroads, also said it is looking forward to additional market opportunities.
“Our company has grown significantly for the last five years and working with Auxo and Genesis will position us to move into other services while continuing to service our existing customers, affirming our commitment to innovation and expanding our vegetation management work to other railroads and DOTs,” said Ferrovia CEO Allen Blythe in a statement.
Jeff Helminski, Auxo co-founder and managing partner, said in a statement: “As railways continue to outsource mission-critical maintenance services to meet efficiency standards and targeted operating ratios, adding Ferrovia’s best-in-class vegetation management capabilities to Genesis Rail’s existing services creates a unique offering within the railroad industry. With Genesis and Ferrovia integrated into a single platform, their full-service offerings provide our customers with a highly capable, safety-focused and cost-effective track maintenance solution.”
Technology’s presence within the rail services industry
While supplementing the railroads’ maintenance programs amid PSR is one reason for Auxo’s investment, another theme in these acquisitions is how both companies utilize technology to improve operations.
“I think it’s important to be aware and try to be in the marketplace in terms of what’s new in artificial intelligence, what’s new in drone technology, what’s new in robotics, what can cameras do to make us more efficient, better, safer, all of that,” McPherson said. “So we’re an old company with new ideas, and we’re very receptive to anything that can make work easier and safer.”
Harman said Genesis used outside party technologies to develop some of the software and programming for some of the services it provides in order to make Genesis’ offerings more efficient and productive. For instance, the company used technological tools to develop its patented tie plate distribution offering.
“We’re wanting to do our very best as these technologies come along,” Harman said.
The technologies that are being developed not only enhance the existing work but can also change how the work is being performed, according to McPherson and Harman. For example, GPS technology has enabled real-time reporting and information to Genesis customers about the positioning of railroad tie plates and railroad ties.
Meanwhile, Ferrovia has developed a proprietary and patented “Seeing Eye” technology that utilizes cameras and controlled nozzles to apply herbicides to system-identified vegetation and surfaces, according to Auxo. Spray trains and trucks equipped with the technology not only increase safety but improve track-time efficiency and herbicide utilization, Auxo said.
“Technology and innovation has become a fundamental driver of everything we do as a company,” said Ferrovia CEO Allen Blythe in an email to FreightWaves. “Our state-of-the-art systems, such as our patented ‘Seeing Eye’ technology, allow us to deliver more precise and targeted applications – bringing the right applications, to the right vegetation, at the right time – which increases overall safety while improving track-time efficiency and herbicide utilization, resulting in more sustainable outcomes and a greater level of service and value to our customers.”
Said Helminski, ““Ferrovia and Genesis are part of our continued acquisition strategy aimed at creating a holistic one-stop shop that can provide virtually any railroad maintenance service, from coast to coast.”