Morningstar | Following Mode Sale, Hub Group Picks Up LTL Logistics Specialist CaseStack
Hub intends to acquire CaseStack for $255 million in cash, with deal closure slated for December. CaseStack, which has main offices in Santa Monica, California and Fayetteville, Arkansas provides asset-light logistics--namely LTL-consolidation and warehousing services--to consumer-packaged goods shippers (80% of revenue) and less-than-truckload brokerage (20%). CaseStack posted revenue of $242 million and EBITDA of about $22 million over the past 12 months ended in September. Of note, the deal comes on the heels of the recent divestiture of Mode for $238 million. Mode provided asset-light truckload brokerage, contract logistics, and intermodal but never quite fit cleanly into Hub's operating model partly because of Mode's use of independent agents; the operation was profitable but didn't create much in the way of synergies, in our view. We will be incorporating the transaction into our model, but we do not expect to materially alter our $41 fair value estimate. At about $48, the shares or trading in modesty overvalued territory.The transaction is not a complete surprise as management has been vocal about being on the hunt for opportunities to further diversify. At first glance, the deal seems to make sense because it profitably expands Hub's existing logistics, and to a lesser degree, its truck brokerage operations. CaseStack adds LTL consolidation and warehousing logistics services for consumer package goods shippers (food and beverage, health and beauty, and cleaning products), while adding LTL brokerage--Hub's legacy brokerage operations are primarily concentrated in on the much larger truckload space. This is not a transformative acquisition since it only boosts total revenue by about 7%, but we estimate it will lift Hub's legacy contract logistics top-line by 28% and truck-brokerage revenue by about 9%. Hub paid roughly 11.5 times trailing EBITDA, which seems slightly high considering our logistics coverage is trading near 10 times on average. That said, based on management's commentary on its conference call, the firm anticipates material cross-selling potential, CaseStack has seen solid growth, and it appears to be a nicely profitable enterprise--its EBITDA margins have historically hovered between 8% and 9%, above Hub’s legacy run rate. We are thus giving the firm the benefit of the doubt that the deal multiple with synergies is a bit lower.
Hub Group is a supply chain management company that provides transportation and logistics solutions. Through its network, the company arranges for the movement of freight in and out of every main city in the U.S., Canada and Mexico. The company's lines of business include: intermodal, which arranges for the movement of its customers' freight in containers and trailers; dedicated trucking, which provides a dedicated fleet of equipment and drivers to each customer; trust brokerage, which operates truck brokerage operations in the U.S.; and logistics, which provides a range of transportation management services and technology solutions, and delivers supply chain services to consumer-packaged goods clients.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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