Transportation and logistics provider Werner Enterprises (NASDAQ: WERN) announced Thursday after the market close that it had acquired an 80% equity stake in ECM Transport Group for $142.4 million. The Omaha, Nebraska-based carrier has the option to purchase the remaining 20% of ECM after five years.
The ECM group of companies includes regional truckload carriers Cheswick, Pennsylvania-based ECM Transport, which operates a fleet of 450 trucks, and Motor Carrier Services of Pennsylvania, which has 50 trucks and is headquartered in Northwood, Ohio.
The group generated revenue of $108 million in 2020 with a fleet of 500 trucks, 2,000 trailers out of its network of eight terminals and 18 drop yard facilities. With a 19.8% operating margin, the deal is expected to be accretive to Werner’s adjusted earnings in the first year.
In 2020, Werner reported consolidated revenue of $2.4 billion with an adjusted operating margin of 10.2%, which includes brokerage and logistics operations that carry significantly lower margins than Werner’s asset-based TL operations (12.8%).
Target revenue run rate
Acquirer revenue run rate
Expected cost synergies
combining fleet management
Recent acquisitions by acquirers
cash and term loan
Table: Company reports
“The addition of ECM’s skilled drivers, nondriver associates and terminal network strengthens our portfolio by adding short-haul expertise in a segment in which consumer demand and supply chain needs are growing,” said Derek Leathers, chairman, president and CEO.
Shortly after it was announced that Leathers would succeed founder CL Werner as chairman, the company’s longer-term capital deployment strategy began to include acquisitions as a potential means of growth. The company sold its freight forwarding segment earlier in the year, refocusing its efforts on its core TL, brokerage and logistics offerings.
Werner ended the first quarter modestly leveraged, carrying $92 million in net debt, or 0.2x net debt-to-last-12-months’ earnings before interest, taxes, depreciation and amortization (EBITDA).
The deal was financed with cash on hand, existing credit facilities and a new $100 million fixed-rate term loan, which matures in May 2024.
In a separate filing with the Securities and Exchange Commission, Werner announced it amended its existing credit agreement with BMO Harris Bank (NYSE: BMO), raising borrowing capacity to $300 million, which includes the new term loan in addition to the existing $200 million revolving credit facility.
The new term loan bears an interest rate of 1.28%.
Werner’s debt leverage increases to 0.4x on a pro forma basis as of the end of the first quarter. The company said it remains committed to a long-term goal of net debt-to-EBITDA in the range of 0.5x to 1.0x.
The deal increases Werner’s fleet (previously 7,800 units) by roughly 6% and adds 500 drivers to the roster. ECM also bolsters Werner’s presence in Ohio and the Mid-Atlantic and Northeast regions of the country and provides it more exposure to the growing 200- to 300-mile length of haul market.
The ECM fleet will continue to operate under its current banner, reporting financial results through Werner’s one-way segment, which is part of its Truckload Transportation Services unit.
The press release said synergies are expected “through combined management of fleet” but noted that the company’s founder and president, Ed Meier, as well as nondriving associates will remain in place.
“We are excited to join the Werner team and look forward to continued growth as we leverage our collective strengths to serve our existing and new customers at even higher levels,” stated Meier. “We are standing by our existing customers and will continue to provide them with excellent service.”
“Both companies believe deeply that our professional drivers are the backbone of our organizations,” Leathers added. “We look forward to welcoming the ECM team and working together to create additional value for our customers and shareholders.”
Werner will host a call at 9 a.m. EDT on Friday to further discuss the transaction.