Heartland Express announced Monday the acquisition of Contract Freighters Inc.’s (CFI) truckload unit and its logistics unit in Mexico from TFI International for $525 million. The deal does not include CFI’s dedicated trucking business or its U.S. brokerage operations.
The combination will make Heartland (NASDAQ: HTLD) the eighth-largest TL fleet and the third-largest asset-based, irregular route carrier in the U.S., with approximately 5,550 tractors, 17,800 trailers and $1.3 billion in annual revenue.
Joplin, Missouri-based CFI generated approximately $575 million in revenue for the 12-month period ended June 30. Heartland said the deal price implies a 5x enterprise value-to-adjusted earnings before interest, taxes, depreciation and amortization multiple.
|Acquisition price||$525M cash enterprise value|
|Target revenue run rate||$575M (LTM)|
|Heartland revenue run rate||$640M (LTM)|
|Earnings expectations||“immediately accretive”|
|Recent acquisitions by Heartland||Smith Transport, Millis Transfer, Gordon Trucking and Interstate Distributor|
|Financing||cash and debt|
CFI provides dry van and temperature-controlled TL services to customers throughout North America with a fleet of 2,100 tractors and 8,000 trailers. The company also employs approximately 250 independent contractors, which operate their own equipment. CFI’s cross-border Mexico unit has operations at five major points of entry along the U.S. southern border. CFI Logistica provides asset-light TL and less-than-truckload services in Mexico.
CFI will continue to operate under its current banner with the same management team.
“We are thrilled to welcome CFI to the Heartland Express family of companies, where it will continue to operate from Joplin under its own brand and current leadership team,” Michael Gerdin, chairman, president and CEO at Heartland, stated in a news release. “CFI has exactly what we look for as we expand — significant scale, a respected and recognizable brand, capable management, safe and experienced drivers, a strong asset base and a complementary terminal network.”
The deal will be immediately accretive to earnings. The transaction will be funded by cash and Heartland’s new $550 million revolving and term loan agreement. Following the closing, Heartland expects to have a net leverage ratio of approximately 1.25x with $160 million in liquidity.
Heartland said the operating plan calls for a consolidated adjusted operating ratio of 85% or better within three years of closing, with all debt incurred funding the deal to be paid off within four years.
The transaction is subject to regulatory approval and is expected to close in the third quarter.
“This transaction is a true ‘win-win-win’ for TFI, for CFI and for Heartland Express,” said Alain Bedard, chairman, CEO and president of Montreal-headquartered TFI (NYSE: TFII). “CFI is a great company, but the U.S. irregular route truckload business has become a small part of our portfolio. CFI’s people have been a small part of big companies for the past 15 years, and we wanted to find them a permanent home with a leader in the asset-based truckload industry to show what they can accomplish.”
TFI will redeploy capital from this transaction to focus on its U.S.-based LTL, asset-light logistics and specialized TL units. In a separate release, it said its 2022 full-year earnings per share guidance of $8 remains unchanged.
The joint book runners on the deal were JPMorgan Chase and Wells Fargo.
Heartland will hold a conference call to discuss the transaction at 11 a.m. EDT on Monday.
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