Morningstar | North American Short-Line Railroad Tuck-In Acquisitions Are Genesee & Wyoming's Specialty
Genesee & Wyoming is a well-run rail transportation company with a history of successful acquisitions and healthy organic expansion within its flagship North American short line operations (57% of revenue). Throughout North America it has assembled a portfolio of more than 115 short-line and regional railroads, as well as intermodal and heavy haul rail operations in Australia and Europe (namely in the United Kingdom). With the 2012 RailAmerica acquisition, the firm doubled its North American presence, and continues to gradually add other smaller short lines to the portfolio, including the west portion of Canadian Pacific's Dakota, Minnesota & Eastern line (2014), the Pinsly Railroad in Arkansas (2015), and the Providence and Worcester Railroad (2016). The March 2015 acquisition of European rail franchise Freightliner further diversified G&W's operations into new geographic locations while offering opportunities for new project development throughout the region. Short line railroad acquisitions are a strong point for G&W due to its highly disciplined approach--most of its North American deals have proven value-accretive. Management typically targets regional railroads and branches of Class I carriers. In existing U.S. regions, G&W's model is to acquire short-lines that are contiguous to current properties so that local management teams can easily identify new corporate and industrial projects to serve as it unlocks latent demand. The RailAmerica deal fell in line with this strategy. Cost synergies were initially limited to corporate overhead, but management uncovered material gains via centralized pricing and the application of G&W’s best-in-class operational acumen. A bigger footprint has also increased G&W's visibility in the marketplace, driving incremental commercial and industrial projects, as well as better access to potential tuck-in acquisitions. We expect G&W to continue its short-line rollup strategy in the years ahead.Genesee & Wyoming owns or leases freight railroads worldwide. The company has three segments: North American Operations, which includes several regions that serve U.S. states and Canadian provinces and includes short line and regional freight railroads; Australian Operations, which serves New South Wales, the Northern Territory and South Australia and operates the Tarcoola-to-Darwin rail line; and U.K./European Operations, which is led by Freightliner Group Limited, a rail maritime intermodal operator and rail freight provider, as well as regional rail services in Continental Europe.
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