غير مصنف

Private equity investors driving industry consolidation

[ad_1]

Mergers and acquisitions are expected to be strong through 2020 as private equity firms see the motorcoach industry as a good investment, especially with concerns about a pending downturn in the economy.

The appeal of the coach industry is its extreme stability and asset base.

During the downturn of the economy in 2008-09, the motorcoach industry did not decline as much as other industries, according to Gerald Lindsay, CPA.

He and his son, Brad, are principals and managing partners of Corporate Finance Associates (CFA) in Memphis, Tennessee, with a practice primarily in the transportation industry. The 60-year-old business is one of North America’s oldest and most prominent advisors serving middle market companies.

“During the downturn of the economy in 2008-09, the motorcoach industry was down about 3.5 percent compared to other industries that were down an average of 10 to 12 percent, per the Standard & Poor sector reports per CFA,” said Gerald Lindsay. “The coach industry is not known for rapid growth but its stability. Most of these companies are relatively slow-growing companies as compared to other sectors of the economy. If you see 5- to 7-percent growth consistently, without acquisitions, that would be considered a good trend.”

The industry offers revenue durability, especially for coach companies that have contracts with school districts or colleges, added Brad, a CFA principal and managing partner. “That revenue is very predictable. In a good or bad economy, the football and basketball teams are going to continue to travel.”

The Lindsays have had a hand in most merger and acquisition deals in the industry for decades. And those transactions have been fairly steady since 1982, when the Bus Regulatory Reform Act made the bus industry the last mode of U.S. transportation to be deregulated. Two years later, the number of interstate passenger carriers tripled to more than 3,000.

Most of those folks, who came into the industry after deregulation, are now ready to retire. Those who don’t have children or relatives to whom they can pass along the business are looking for an exit strategy.

Right now, it continues to be a seller’s market because capital, known as “dry powder,” is outpacing the supply of good and healthy companies.

“There are a lot of suitors that are trying to find homes for their capital out there,” Brad said. “I would bet that the vast majority of the coach owners get letters now on a regular basis with the message, ‘We’d like to buy your business’ or ‘We’d like to take a look.’”

What makes a company marketable to a buyer or investor? Usually, they want to see a positive profit trend and a well-maintained fleet. Strong management and clean financial records are essential, as well.

Nearly 90 percent of deals in the motorcoach industry are going to fall under the $50-million transaction threshold, which is considered the lower-middle market. There are more private equity firms interested in transactions of this size compared to other ranges.

“The first thing we ask the client who is looking to transition their business is, ‘What exactly is it you’re trying to accomplish?’ Many folks are not aware of all the possibilities available to them so that they can craft a transaction that meets their family’s needs.

“If it is a husband-and-wife team who are approaching 80 years of age, they’re probably going to want to sell 100 percent of the stock. If you are wanting private equity to help you build the company, then you’re probably going to want to keep as much stock as you can. There are many variations of these possibilities,” Gerald said.

What makes a company marketable to a buyer or investor?

  • History of earnings trending upward
  • Well-maintained fleet and other assets
  • Solid management willing to stay for at least 18 months after the deal
  • Good record-keeping and accounting practices

Timeline of Notable Merger and Acquisition Deals

2009 — Red Clay Capital Holdings buys Gray Line of Nashville, which was subsequently sold to XMi, a TNInvestCo entity. The company currently operates as Tennessee Gray Line.

2012 — Private equity firm Celerity Partners buys All Aboard America! and grows the Arizona-based operation over the next several years with the acquisition of Calco Hotard of New Orleans, Sun Diego Charter and the Denver operations of Horizon Coach Lines, later renamed Ace Express Coaches. Now the fourth-largest motorcoach operator in the U.S. and Canada, All Aboard America! was acquired by Tensile Capital Partners in 2016.

2015 — AFC Transportation of Houston and Echo Transportation of Dallas consolidate under new parent company TBL Group Inc., creating the nation’s 10th-largest motorcoach operation and the biggest in Texas.

2015 — New Flyer Industries Inc. acquires Motor Coach Industries International Inc. from an equity firm for $455 million. The deal brought together North America’s biggest manufacturer of motorcoaches with the top maker of heavy-duty transit buses. Motor Coach Industries Inc. filed Chapter 11 in September 2008, shedding hundreds of millions of dollars of debt, and emerged from Chapter 11 in 2009 to become wholly owned by KPS Capital Partners LP, a private equity limited partnership. In 2015, New Flyer, which has a relationship with KPS, purchased MCI.

2016 — Silverado Stages Inc. and Michelangelo Leasing Inc. merge to expand Silverado’s reach across California, Arizona and Nevada. Three years later, Silverado files for bankruptcy, blaming its downfall on the 2016 merger, “unsustainable, near predatory” competition and a soft secondary market for the sale of excess motorcoach assets.

2016 — Bennett Capital Partners acquires Cavallo, an Illinois-based, family-owned business with 220 employees and a fleet of 100 coaches. A year later, Cavallo buys White Knight Limousine Inc. and, in 2018, the 74-year-old Cavallo files for bankruptcy.

2017 — CVG Group LLC buys a financial stake in Starline Luxury Coach, A&A Motorcoach and Wheatland Express in the Seattle area. Starline is one of the largest motorcoach and minibus operators in the Pacific Northwest.

2017 — Canadian companies Charter Bus Lines and Traxx Coachlines merge to create a dominant player in the Western Canadian and Pacific Northwest markets.

2018 — Kincaid Coach Lines, one of the largest motorcoach operators in the U.S., acquires Red Carpet Charters, which served the Oklahoma City, Tulsa and Dallas/Fort Worth markets.

2019 — Scotland-based Stagecoach, the owner of Megabus and Coach USA, sells North American operations to Variant, a California private equity firm.

2019 — GO Riteway Transportation Group acquires Lazers Bus Service of Marshall, Wisconsin. The acquisition provides a key strategic location for the expansion of GO Riteway operations in south-central Wisconsin.

[ad_2]

Source link

Related Articles

Leave a Reply

Back to top button
Close