Last week Riverside Company, a Cleveland-based private equity firm, announced that it had acquired Alliance1, a freight hauling company based in Nashville, Tennessee, to add to an existing platform company called Express Courier, also based in central Tennessee. Both companies manage time-sensitive deliveries throughout the southeastern U.S. Although, as we have seen before, the details of this transaction were not released, the strategic thinking behind the deal is fairly clear based on the press release and company websites.
Because we have to ask ourselves, if the economy is growing so slowly, why would an equity firm continue to expand its holdings in the transportation industry? Maybe, just maybe, Riverside has a much better view of the longer-term growth of this country than the media does.
More About Riverside
But before we dive into the deal, let me give you a little information regarding the Riverside Company. Many of you probably have never heard of it, but Riverside has historically been one of the most active middle-market equity firms in the U.S. In fact, per their website, they have closed 290 transactions in the past 22 years. If you do the math, that’s more than 13 per year. By the way, the Alliance1 acquisition is Riverside’s eighth acquisition of 2011 – so they are on pace to close well more than 13 this year.
They have a proven track record of acquiring middle-market companies – holding them over a longer time frame than most firms – and helping them grow by providing managerial, financial, and marketing expertise. They are able to provide this level of service because they have over $3 billion in capital and nearly 200 employees (FYI – the firm’s portfolio in North America, Europe and the Asia Pacific region includes more than 75 companies with roughly 14,000 employees).
Over the years they have been one of the most active and successful middle-market equity firms. One of their key strengths is that they have “never failed to close a deal for lack of funding.” Trust me, not many equity firms can say that. In addition they are known for the speed with which they close deals, typically completing the sale process in as little as 45 days—without disrupting day-to-day operations of the business (a process that can take 90 days or more in many instances). And most importantly, their key trait that should appeal to you as the owner of a lower middle-market business is that they “focus exclusively on the smaller end of the middle-market.”
Riverside currently has four active funds:
- Riverside Capital Appreciation Fund (RCAF) traces its lineage to 1988. It invests in North American-based platform companies with EBITDA (earnings before interest, taxes, depreciation, and amortization) of $5 million to $20 million.
- Riverside Europe Fund (REF) began making investments in 1997. This fund family invests in leading companies from Portugal to Scandinavia with EBITDA of between €3 million and €20 million.
- Riverside Micro-Cap Fund (RMCF) made its first investment in 2005. This fund family seeks fast-growing North American “micro” companies with up to $5 million in EBITDA.
- Riverside Asia Fund (RAF) was launched in 2007. This fund family targets the developed economies of the Asia-Pacific region, focusing on companies with less than $10 million in EBITDA.
I call attention to the third fund because it is this fund that has intrigued me the most over the years. As you can see, this fund ONLY focuses on micro middle-market companies, specializing in acquiring small companies with EBITDA BELOW $5 million. This fund really blazed a trail for other firms to follow, and now there are quite a number of equity firms that focus on the lower end of the market. Why do they do that? Because typically it’s where you can find the most stable, longer-term returns (if you know what you are doing, as Riverside does). Currently, Riverside’s micro cap fund has 20 portfolio companies.[1]
The Anatomy of the Deal
One of the companies in the micro-cap portfolio is Express Couriers, the platform company that Alliance1 will be added to. As stated in the press release, “This deal cements Express Couriers’ leadership position in Tennessee and offers many advantages,” said Riverside Managing Partner Loren Schlachet. “With increased route density, the combined companies will serve more customers more effectively than ever before.” Alliance1 provides same-day courier services throughout Tennessee, including routes to Nashville, Memphis, Knoxville, Jackson, and the Tri-Cities and serves a range of customers, primarily in the pharmaceutical distribution and medical lab industries.
The acquisition solidifies Express Couriers’ position as the leading same-day courier in Tennessee. Express Couriers has a broader end-market focus but a similar business model. They operate through 18 branch locations and currently service a 10-state area in the Southeast. They also provide a wide range of services:
- On demand for 1-hour, 2-hour or 4-hour delivery
- Scheduled/routed pickups and deliveries
- Out-of-town and exclusive use service
- Distribution and logistics
- Warehousing
- Next-day distribution
Per the press release, “Given the route overlap and similar nature of our businesses we anticipate a seamless integration that should leave customers of both firms even better served,” said Express President Chuck Moyer. “We’re excited about becoming even more effective.” (emphasis added)
It is clear that Express and Alliance1’s complementary core competencies will enable the combined organization to provide customers with a complete range of services and technology for both expedited and reliable transportation within the Southeast. And it appears to me that Express Couriers has a broad market orientation and Alliance1 focuses on the medical niche. This combination will allow Alliance1 to expand via additional routes, vehicles, drivers, etc. It will allow Express to diversify into a very fast growing niche. And most importantly, as stated by Mr. Moyer, it will make both companies even more effective.
Why the Deal Happened (Despite Economic News)
So you can see what the smart folks at Riverside are thinking. Given the aging of the population and our growing need for immediate access to lab results, pharmaceutical products, and other medical items, adding Alliance1 to Express Couriers makes sense. In the longer term, as Riverside adds other acquisitions to Express Couriers, you can bet that Riverside will use the same logic as they did with this deal.
So if you own a successful middle-market transportation/courier company, you may want to find out if an equity firm like Riverside might find your business attractive. The best way to do this, and the only way you can be sure not to leave chips on the table, is to partner with an experienced M&A advisory firm. Finding the optimal buyer is one thing, successfully closing the deal is quite another.
[1] As an aside: You will also see a platform company named Polar Windows. Generational Equity represented Polar Windows in this sale which closed in 2007.
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