Heartland Express announced Monday acquisition (CFI) of the freight division of Contract Freighters Inc. and its inactive logistics division in Mexico from TFI International for $525 million. The transaction does not include CFI’s specialized transportation business or US brokerage operations.
The combination will make Heartland (NASDAQ: HTLD) is the eighth largest TL fleet and the third largest irregular route carrier in the United States based on assets, with approximately 5,550 tractor units, 17,800 trailers and $1.3 billion in annual revenue.
CFI, based in Joplin, Missouri, generated about $575 million in revenue for the 12-month period ended June 30. Hartland said the deal price assumes a 5x ratio of enterprise value to adjusted earnings before interest, taxes, depreciation and amortization.
| Purchase price | The monetary value of the enterprise is 525 million dollars |
| Target income level | $575 million (LTM) |
| Heartland Revenue Rate | $640 million (LTM) |
| Expectation of profit | “increases immediately” |
| Heartland’s latest acquisitions | Smith Transport, Millis Transfer, Gordon Trucking and Interstate Distributor |
| Financing | cash and debts |
CFI provides dry vans and temperature-controlled TLs to customers throughout North America with a fleet of 2,100 tractors and 8,000 trailers. The company also employs approximately 250 independent contractors who operate their own equipment. CFI’s Mexican Cross-Border Division has five facilities at major points of entry along the southern US border. CFI Logistica provides low-asset and low-load TL services in Mexico.
CFI will continue to operate under its current banner with the same management team.
“We are very pleased to welcome CFI to the Heartland Express family of companies, where it will continue to operate out of Joplin under its own brand and current management team,” Michael Gerdin, Heartland’s chairman, president and CEO, said in a news release. “CFI has exactly what we are looking for as we expand – significant scale, a respected and recognizable brand, capable management, safe and experienced drivers, a strong asset base and an additional terminal network.”
The transaction will immediately result in profit. The deal will be financed with cash on hand and Heartland’s new $550 million revolving and term loan agreement. Upon closing, Heartland expects a net leverage ratio of approximately 1.25x with liquidity of $160 million.
Hartland said the operating plan calls for a consolidated adjusted operating ratio of 85% or higher within three years of closing, with all debt to finance the transaction to be paid within four years.
The transaction is subject to regulatory approval and is expected to close in the third quarter.
“This transaction is a true win-win for TFI, CFI and Heartland Express,” said Alain Bedard, chairman, CEO and president of TFI, headquartered in Montreal (NYSE: TFII). “CFI is a great company, but the US irregular route truck business has become a small part of our portfolio. CFI employees have been a small part of major companies for the past 15 years, and we wanted to find them a permanent home with a leader in the asset-based freight industry to show what they can achieve.”
TFI will reallocate capital from this transaction to focus on its US LTL, asset logistics and specialized TL divisions. U separate issueit said its full-year 2022 EPS guidance of $8 remains unchanged.
JPMorgan Chase and Wells Fargo were the joint authors of the agreement.
Heartland will hold a conference call to discuss the deal at 11 a.m. EDT on Monday.
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