Canada's trucking industry has seen a lot of M&A activity recently. A new deal for the sector involving Mullen Group Ltd. is notable for a number of reasons.
Okotoks, Alta.-based Mullen Group Ltd. announced Monday it has purchased Gardewine Group for $172-million, paying an estimated six to seven times multiple of operating earnings, depending on how the parties valued the real estate that comes with the deal. The selling group includes Triwest Capital Partners.
Mullen stock has fallen on hard times lately and it's no surprise why: Just over 60 per cent of its business comes from oil field services, which has sagged thanks to the effect of lower oil prices on western Canada. Refreshingly, Gardewine is not in the oil and gas business, but trucking, generating steady cash flows in Ontario, Manitoba and Saskatchewan. The deal will allow Mullen to increase its revenues derived from trucking, which accounted for 39 per cent of its $1.1-billion in revenue in the first nine months of the year.
Mullen said the deal will increase trucking's share of revenue to 50 per cent from 40 per cent in 2015.
It's a good strategic fit, complementing Mullen's existing operations in Saskatchewan, sources familiar with the parties tell Streetwise. The deal is also another feather in the cap for Triwest, one of the most established and successful private equity funds in western Canada, which invested in Gardewine in November, 2008, along with the company's senior managers. Gardewine subsequently bought a trucking company from Sault Ste. Marie, Ont. in 2011 called Trans Provincial Freight Carriers Ltd.
Gardewine, founded in 1952, operates a fleet of about 660 trucks and 1,300 trailers through a network of 34 owned and leased terminals. It has over 1,500 employees and 140 contract owner operators.
"This is one of those acquisitions that simply does not come along very often," Mullen chairman and CEO Murray Mullen said in a release, describing the deal as "strategic" and meeting the company's investment criteria. "Acquiring a brand name company like Gardewine will not only provide Mullen Group with a potential new growth opportunity, it will diversify our overall business, adding to our Trucking/Logistics segment during a time when the energy sector in western Canada is facing some cyclical headwinds. Diversification is truly one of the overall strengths of our organization," added Mr. Mullen.
Mullen said the deal will be accretive to earnings, boosting operating income by about $25-million, and comes with 23 terminals valued at about $40-million.
As for the investment bankers involved, a deal like this will bring in a nice little flow of fees, likely in the range of industry norms of about 1 per cent of the deal value for the adviser on the sell side – CIBC World Markets – and a bit less for Mullen's advisers at TD Securities.
Burnet, Duckworth & Palmer LLP provided legal advice to Mullen, while Gardewine's sellers were advised by Stikeman Elliott LLP.
Mullen recently closed a $400-million notes financing through a private placement.