NORTH LIBERTY, Iowa — Heartland Express, one of North America’s largest truckload transportation companies, said Thursday it has acquired 100 percent of the outstanding stock of Interstate Distributor Co. of Tacoma, Washington, from Saltchuk Resources.
Michael Gerdin, chairman, president and CEO of Heartland noted that Interstate Distributor’s truckload business generated approximately $325 million in total revenue during 2016.
He said Interstate Distributor’s Tacoma, Washington, headquarters and national terminal network overlap substantially with existing Heartland locations and will be consolidated together over the near to medium term.
The transaction enterprise value of approximately $113 million includes approximately $94 million in cash for the equity, $23 million in assumed debt and $4 million of acquired cash.
“We are excited to add Interstate Distributor’s high-quality drivers, experienced personnel, and strong customer base to Heartland's operations. Our first criterion is always safe and highly qualified professional truck drivers. Interstate Distributor has an experienced driver base with improving safety results over the past several years, and we are impressed by their culture. Additionally, it is an excellent operational fit, as its terminal network has nearly direct overlap with our current locations. Heartland will gain significant additional traffic density in the West, and our stronger eastern network will improve service for IDC's customers in the East.”
Gerdin said since expanding its footprint and density with the acquisition of Gordon Trucking in late 2013, Heartland has invested significantly in a new tractor and trailer fleet, returned its operating ratio to the low- to mid-80s, repaid all of the acquisition debt, and accumulated approximately $170 million in cash.
“With a strong operating base and confidence in the future, we have been carefully evaluating several acquisition candidates and ranked IDC at the top because of the direct path to achieving synergies,” Gerdin said. “I would like to thank Mark Tabbutt and his colleagues at Saltchuk, as their integrity and professionalism made for a smooth and successful transaction process.”
“Since acquiring IDC in 2012, we have made significant investments in IDC's fleet, personnel, and business practices,” said Tabbutt, who is chairman of Saltchuk. “We are very proud of the advancements in safety and customer service on our watch and we appreciate the efforts of Interstate Distributor’s management to improve the business. Ultimately, we decided to look for a new home for Interstate to allow us to focus investment in other areas of our business. Heartland offered not only a strategic fit for the business that would allow it to grow, but a good cultural match for the team. As we announce this next chapter for Interstate Distributor, I would like to thank all of the Interstate Distributor’s employees for their service to Saltchuk, as they have made us proud."
Gerdin said after funding the transaction, including repayment of assumed debt but excluding funding of certain insurance reserves with restricted cash, Heartland will remain debt-free, with substantial liquidity and financial flexibility from a remaining cash balance of over $50 million and $170 million of availability on its revolving line of credit.
Interstate Distributor was founded in 1933 and provides primarily dry van truckload transportation services, including local, regional, dedicated, and transcontinental services. The company’s primary operating territories are the western and southeastern United States. The carrier employs primarily experienced professional truck drivers and provides customers a high level of service, stated a company news release. In each of the last three years, Interstate Distributor was recognized as one of the top three safest fleets in America by the Truckload Carriers Association and has consistently been recognized as one of the Best Fleets to Drive For by CarriersEdge and the Truckload Carriers Association.
Interstate Distributor’s truckload business generated approximately $325 million in total revenue for 2016, including fuel surcharge revenue. IDC generated an operating loss for 2016 and expects an operating loss for the six months ended June 30, 2017.
Interstate Distributor’s fleet consists of approximately 1,350 company tractors, 220 tractors supplied by independent contractors, and 4,700 trailers. The company tractors have an average age of approximately three years, and the trailers have an average age of approximately seven and a half years.
Interstate Distributor’s diverse customer base covers end markets such as retail, food and beverage, consumer products, and transportation and logistics, including more than 60 Fortune 500 companies. No single customer accounted for more than 5 percent of Interstate Distributor’s s total revenue in 2016. Of IDC's top 10 customers in 2016, only three were in the top 10 customers of Heartland for the same period.
Gerdin said Heartland expects to integrate Interstate Distributor into Heartland's existing operations and operate under the Heartland brand soon after closing. Administrative, sales and marketing, pricing, recruiting, safety, accounting, information technology and similar functions will be combined using personnel from both companies to provide seamless service to customers and drivers.
The overlapping Heartland and IDC locations largely will be consolidated over the next 18 months. Regions with overlap of significant facilities include Seattle-Tacoma, Oregon, Southern California, Phoenix, and Nashville. In addition, numerous Interstate Distributor drop yards will no longer be needed, as Heartland has a footprint of 21 terminal locations across the U.S. that will be utilized along with numerous drop locations.
From a fleet perspective, Heartland expects to invest in refreshing Interstate Distributor’s tractor and trailer fleet to bring the average age closer to Heartland's normal fleet age. Heartland's warranty, maintenance, and operating practices with respect to equipment will be implemented. In addition, purchasing economies in equipment, fuel, tires, parts, over the road services, and other areas are expected.
Because of the overlap of facilities and operating territories, the overall capacity of the companies will be available to the combined customer base. We expect substantial opportunities to use greater lane density to improve utilization and yields through more efficient dispatch and capacity allocation.
Based on expected synergies, the transaction is expected to be accretive to Heartland's earnings in the first full quarter of operations.