CLOSING THE DEAL Consolidation Trends in Transportation & - PDF document

9/28/2017 CLOSING THE DEAL Consolidation Trends in Transportation & Logistics September 28, 2017 Chris Dalton Greg Lafin Jeff Ronsse Partner, National Practice Leader Managing Director Managing Partner Transaction Services BKD Corporate Finance cdalton@bkd.com glafin@bkd.com jronsse@bkd.com Gerry DeBiasi Matt Klauser Partner, Kidd & Co. Director Transaction Services gdebiasi@kiddcompany.com mklauser@bkd.com 1

9/28/2017 TO RECEIVE CPE CREDIT Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group •  Complete group attendance form with Title & date of live webinar • Your company name • Your printed name, signature & email address •  All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar  Answer polls when they are provided If all eligibility requirements are met, each participant will be emailed their CPE certificates within • 15 business days of live webinar INTRODUCTION • Thank you for joining! • Consolidation in transportation & logistics – interest & importance  Transportation industry is highly competitive & fragmented – consolidation is attractive  Correlation with consumer spending  Increase in value added or niche services – key differentiators  Technology-based services 2

9/28/2017 INTRODUCTION • Numerous perspectives for today’s discussion  Corporate Finance  Transaction Services  Audit/Tax  Private Equity TRANSPORTATION & LOGISTICS INDUSTRY UPDATE – HY 2017 OUTLOOK BKD Corporate Finance, LLC (BKDCF) has seen an increase in the activity of mergers & acquisitions (M&A) consolidation occurring in the trucking & transportation segment. This trend is expected to continue throughout the next five years, with market experts forecasting annual growth of 3 percent Key External Drivers Include Keys to M&A Consolidation Key Highlights • Industrial Production Index • Access to quality personnel • Lowest performing subsector stock in Q2 of 2017 was Reverse Logistics, up • Freight Transportation Services Index • Customer relationships 0.3% • Consumer spending • Optimum capacity utilization • On average, EV/LTM EBITDA multiples for the subsectors were up by 0.3x over • Price of crude oil • Technology the prior quarter & up 1.3x on a year • E-commerce sales • Governmental policies & regulation over year basis • Very competitive landscape • Increased supply chain complexity Source: Harris Williams, Lincoln International 3

9/28/2017 INDUSTRY AT A GLANCE: LOGISTICS The 3PL market is forecast to grow at a significant rate owing to the increasing focus of manufacturers on their core businesses & • subcontracting the activities, where they have less expertise The growth in the e-commerce industry is expected to drive the 3PL market due to an increase in demand for fast delivery, • efficient inventory management, freight forwarding & individualized shipping time The players in the e-commerce sector are focused on selling goods online, thus necessitating the need for 3PL market providers • EV/EBITDA 12.8x 12.8x 12.4x 12.0x 11.7x 11.2x 12.0x 10.7x 10.0x 8.9x 8.8x 8.8x 8.0x 6.0x Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 3PL Reverse Logistics 3PL MARKET TO SURPASS $1,100 BILLION BY 2024 Source: IBIS World, Lincoln International TRENDS & OUTLOOK – LOGISTICS Shippers are also anticipated to shift more of their transportation operations onto 3PL providers as they try to simplify their • supply chain & focus their core business Large multinational corporations & even small domestic retailers or manufactures are increasingly relying upon 3PL companies to • provide transportation services that could simplify & manage supply chains that stretch over continents Industry revenue is projected to climb at an annualized rate of 3.6% to $198.6 billion over the five years to 2021 • Products & Services Segmentation 5.90% 22.40% Total $166.5Bn 71.70% Transportation Management Warehousing and Related Services Other Services Source: S&P Capital IQ, Lincoln International 4

9/28/2017 INDUSTRY AT A GLANCE: TRUCKING Expected annual growth to be 2.2%+ over the next five years • Upticks in consumer confidence & spending will boost demand for goods transportation • The industrial production index is expected to increase in 2017 & 2018 • Further increases in per capita disposable income & consumer confidence are expected to cause consumer spending to rise • EV/EBITDA 12.0x 10.9x 10.5x 11.0x 9.8x 9.4x 10.0x 9.1x 9.0x 8.2x 7.4x 7.4x 8.0x 6.9x 6.9x 6.6x 6.5x 6.5x 7.0x 6.1x 6.1x 6.0x 5.0x 4.0x 3.0x Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Freight Forwarding/Intermodal Truckload Carriers Contracted Transportation Improving economic conditions & a rise in diesel prices will benefit the industry Source: IBIS World, Lincoln International TRENDS & OUTLOOK – TRUCKING Industry consolidation will allow larger companies to leverage their size, resources & expand their geographic reach • The industry’s largest players have been able to attract more business, enabling them to outperform smaller companies, which • account for the vast majority of industry market share Growing trade volumes will support steady industry revenue growth • Due to fragmentation, operators experience intense price competition & generally earn low profit margins • Products & Services Segmentation 24.50% 38.10% Total $222.4Bn 37.40% Other Transposrations Services Truckload Carriers Less-Than Truckload Carriers Source: IBIS World 5

9/28/2017 GF DATA – PRIVATE EQUITY MULTIPLES NAICS Code: 484 Truck Transportation (21) Enterprise Total Enterprise Revenues ($ in TTM Rev Enterprise Enterprise # of EBITDA Margin % Value Range Value ($ in millions) millions) Growth % Value/Revenue Value/EBITDA Transactions 10 - 25 16.9 30.6 7.0 16.4 0.6 4.5 2 25 - 50 33.1 43.5 17.6 17.5 0.9 5.3 2 50 - 100 58.8 54.2 8.8 21.8 1.1 5.3 1 100 - 250 177.5 216.5 15.8 12.6 0.8 6.8 1 Total 67.7 82.4 13.7 16.9 0.9 5.5 1.6 Total Enterprise Revenues ($ in TTM Rev Enterprise Enterprise # of Year EBITDA Margin % Value ($ in millions) millions) Growth % Value/Revenue Value/EBITDA Transactions 2005-2006 27.9 38.7 28.7 21.4 0.9 4.1 3 2007 97.7 132.3 9.8 11.6 0.8 6.5 4 2008 105.6 93.8 24.6 19.5 1.0 5.2 3 2009-2011 39.7 54.7 6.5 14.5 0.8 5.7 4 2012-2013 127.2 168.3 10.8 15.3 0.9 6.1 3 2014-2016 31.4 32.6 8.7 20.0 1.0 5.3 5 Total 67.7 82.4 13.7 16.9 0.9 5.5 22 Source: S&P Capital IQ, Lincoln International GF DATA – PRIVATE EQUITY MULTIPLES NAICS Code: 4885 Freight Transportation Arrangement (6) Enterprise Total Enterprise Revenues ($ in EBITDA Enterprise Enterprise # of TTM Rev Growth % Value Range Value ($ in millions) millions) Margin % Value/Revenue Value/EBITDA Transactions 10 - 250 73.3 131.0 15.5 18.4 1.2x 6.8x 6 Total 73.3 131.0 15.5 18.4 1.2x 6.8x 6 Total Enterprise Revenues ($ in EBITDA Enterprise Enterprise # of Year TTM Rev Growth % Value ($ in millions) millions) Margin % Value/Revenue Value/EBITDA Transactions 2003-2007 77.4 65.4 14.4 22.8 1.7x 6.6x 3 2009-2012 69.2 196.6 16.5 13.9 0.7x 7.0x 3 Total 73.3 131.0 15.5 18.4 1.2x 6.8x 6 Source: S&P Capital IQ, Lincoln International 6

9/28/2017 INDUSTRY ACQUISITIONS Industry Acquisitions ($ in Millions) Net Transaction Multiple of Multiple of Date Acquiring Company Seller (Description) Revenue EBITDA Value Revenue EBITDA Sept-5-2017 Daseke R&R Trucking Sept-2-2017 Carlyle Group United Road Vehicle Transporter 95 325 Aug-17-2017 Quick International Courier Unitrans 0.29 June-10-2017 Penske Truck Leasing Old Dominion Truck Leasing 2,971 4,008 480 Apr-10-2017 Knight Transportation Swift Transportation 0.74 8.35 626 Dec-27-2016 Daseke Hennessy Capital Acquisition 558 530 115 Oct-28-2016 Transforce CFI 1.05 4.85 14 13 Jul-30-2015 Celadon Group Inc. Buckler Transport 1.09 117 Jul-6-2017 Heartland Express Interstate Distributor Mar-02-2015 CRST International, Inc. Pegasus Transportation, Inc. - - - Dec-07-2015 Leonard's Express, Inc. WCD Trucking - - - Oct-30-2015 XPO Logistics, Inc. Con-way Inc. 3,057 5,745 497 0.53 6.16 Aug-18-2015 Apax Partners LLP Quality Distribution Inc. 801 988 69 0.81 11.67 Aug-18-2015 United Parcel Service, Inc. Coyote Logistics, LLC 1,800 2,100 - 0.86 Roadrunner Transportation Jul-28-2015 Systems, Inc. Stagecoach Cartage and Distribution, LP. 40 34 7 1.18 5.71 Jan-20-2015 Celadon Group Inc. Taylor Express, Inc. 43 38 - 1.13 Has been acquired by Minneapolis, MN BKD Corporate Finance acted as financial advisor to JBS Logistics in this transaction 7

9/28/2017 Trailer Rental Company Has been acquired by Private Investors BKD Corporate Finance acted as financial advisor to the Trailer Rental Company in this transaction PANEL DISCUSSION Chris Dalton Greg Lafin Partner, National Practice Managing Director Jeff Ronsse Leader BKD Corporate Finance Managing Partner Transaction Services glafin@bkd.com jronsse@bkd.com cdalton@bkd.com Matt Klauser Gerry DeBiasi Director Transaction Services Partner, Kidd & Co gdebiasi@kiddcompany.com mklauser@bkd.com 8