Linx Partners, a New York-based private equity firm, announced that it successfully sold its investment in Grammer Industries to Stellex Capital Management. Grammer Industries is a bulk chemical trucking carrier headquartered in Indiana and focusing on anhydrous ammonia, liquefied natural gases, carbon dioxide, nitric acid, cryogenic liquids, and other chemicals. Linx Partners acquired its majority stake in Grammer in 2012. FreightWaves spoke to Linx Partners’ co-founder and managing director Peter Hicks by phone.
Hicks said that his firm has been interested in trucking for a decade, and had to defy Wall Street’s conventional wisdom that trucking was a bad investment because the industry was highly regulated, capital-intensive, had serious labor issues, was an accident waiting to happen, had a low return on invested capital, and had aging founder-managements. According to Hicks, these well-known negatives required potential investors to look with “a new set of eyes” and think differently.
“We believed that there were regional trucking companies with passionate management leadership, who were focused on customer service, were highly valued by their customers, and were doing distinctive things that we felt we could build upon,” Hicks said. The question, then, was whether Linx could identify specific companies that fit its template. Hicks went on to say that Grammer’s relentless focus on safety eventually made Linx more comfortable investing in the transportation of hazardous materials.
“Grammer’s commitment to exceptional customer service, safety, and the modernization of its fleet—all of those things came together with a view that we could, in our minds, help the family owners and management team build and grow this platform,” Hicks said.
Grammer Industries has a network of 17 terminals concentrated around chemical production hubs in the Gulf Coast, Southeast, and Midwest that has allowed the company to grow alongside the rapid growth in the American petrochemical industry since 2015. Hicks admitted that while Linx initiated its investment in Grammer with a specific plan to grow the business, the investors did not anticipate the way that the transformation of the downstream oil and gas and petrochemicals industry would affect Grammer’s growth story.
“Grammer benefited from—which was not identified at the origin of the investment—a changing chemical plant trend where the Gulf Coast of the United States became essential to the manufacture of chemical feedstock,” said Hicks. “The U.S. petrochemical industry shifted to an emphasis on low-cost natural gas reserves in the Gulf Coast region, and they needed logistics solutions. Therefore there was a substantial change in the importation of certain chemicals; this benefited domestic trucking companies like Grammer.”
During the period of Linx’s investment, the changing distribution of agricultural chemical products like fertilizer intensified volumes on lanes from the Gulf Coast into the Midwest, which also benefited Grammer. Hicks went on to say that Linx guided Grammer through several acquisitions, such as Select Transport in 2014, that expanded Grammer’s geographical coverage and the diversity of the chemicals it hauled. Grammer also expanded its service offerings, like opening facilities to transload chemical products from rail to truck and vice versa.
FreightWaves was interested in Linx’s decision to sell: why now?
“A lot of variables that go into the decision to sell,” Hicks pointed out, “but most importantly, we had a management and financial picture that clearly identified a growth strategy for a new buyer. Succession was accomplished in the company, and as well as a build out in the management team, there were clearly identified avenues for growth: all of these variables were taken into account.”
We also wanted to hear about how private equity viewed transportation and logistics generally and trucking specifically. Linx Partners is something of a specialist in trucking transportation, having acquired Elite Express, an LTL carrier in 2016 and Transpro Burgener, a Rocky Mountain-area energy and industrial transporter of bulk materials, in 2014. Linx has also successfully sold its investments in previous trucking companies.
“The reason why the trucking industry is so interesting to private equity and strategic acquirers is because it is vital to a growing U.S. economy: trucking is somewhere between 7-8% of total GNP and 70% of all freight that is moved,” said Hicks. “It is undergoing rapid change, and many family-owned companies cannot keep up with the regulatory pressures, the demand to modernize their fleet, and the technology that must be put into their businesses, and therefore it is quite clear that consolidation will continue.”
FreightWaves has covered some of the more notable M&A deals in transportation and logistics this year, and we’ve heard over and over again that there are more buyers than sellers, that valuations are historically high, and that strategic buyers are having a hard time competing with private equity firms when it comes to making a deal. We asked Linx to help us understand why different buyers were willing to pay different multiples for the same company.
“All potential buyers are viewing the situation differently,” Hicks explained. “Some strategic buyers are just thinking about integrating, cutting costs, and rolling it up into their existing infrastructure. A private equity firm may be looking at this as, if you will, a platform, that is just step one in a series of other acquisitions to build something quite different.”
We also wanted to find out how private equity companies can continue to make profitable investments in a very active—some would say overheated—market.
“It demands today, with purchase prices being historically high, a very specific game plan for buyers. The notion of just making an investment and passively watching it over a twelve to 18 month period is certainly not our experience,” Hicks said. He ended the conversation by reflecting on Linx’s partnership with Grammer.
“Especially in what we did with Grammer, it really demands a unique partnership with the founding family such that you work very hard to be on the same page in regard to the steps that are going to be made. We were pleased that we were able to achieve an outstanding partnership, personal and professional, with the founding Whittington family of Grammer Industries,” Hicks concluded.