Private Equity Investors Drive Industry Consolidation

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Mergers and acquisitions are expected to be strong through 2020, as private equity firms view the coach industry as a good investment, especially with concerns of an impending slowdown in the economy.

The attraction of the coach industry lies in its extreme stability and strengths.

During the downturn in the economy in 2008-09, the coach industry did not shrink as much as other industries, according to Gerald Lindsay, CPA.

He and his son, Brad, are directors and managing partners of Corporate Finance Associates (CFA) in Memphis, Tennessee, with practice primarily in the transportation industry. The 60-year-old company is one of North America’s oldest and most prominent advisers serving mid-market businesses.

“During the downturn in the economy in 2008-09, the coach industry was down about 3.5% compared to other industries which were down on average 10-12%, according to reports from the Standard & Poor sector by CFA, ”said Gerald Lindsay. “The coach industry is not known for its rapid growth, but for its stability. Most of these businesses are relatively slow growing businesses compared to other sectors of the economy. If you see constant growth of 5-7% without acquisitions, that would be considered a good trend. “

The industry offers revenue sustainability, especially for coach companies that have contracts with school districts or colleges, added Brad, director and managing partner of CFA. “These revenues are very predictable. In a good or a bad economy, football and basketball teams will continue to travel. “

The Lindsays have been involved in most of the industry’s M&A deals for decades. And those transactions have been fairly stable since 1982, when the Bus Regulatory Reform Act made the bus industry the last US mode of transportation to be deregulated. Two years later, the number of interstate passenger carriers has tripled to over 3,000.

Most of these people, who entered the industry after deregulation, are now ready to retire. Those who do not have children or parents to pass the business on are looking for an exit strategy.

Today, it continues to be a sellers market because the capital, known as “dry powder,” outstrips the supply of good, healthy companies.

“There are a lot of suitors out there trying to find homes for their capital out there,” Brad said. “I would bet that the vast majority of coach owners now regularly receive letters with the message ‘We would like to buy your business’ or ‘We would like to take a look’.

What makes a business marketable for a buyer or investor? Usually they want to see a positive profit trend and a well-maintained fleet. Strong management and clean financial records are also essential.

Almost 90% of transactions in the coach industry will fall below the transaction threshold of $ 50 million, which is considered the lower middle market. There are more private equity firms interested in transactions of this size compared to other lines.

“The first thing we ask a customer who wants to grow their business is, ‘What exactly are you trying to accomplish? Many people do not know all the options available to them in order to be able to close a transaction that meets the needs of their family.

“If this is a husband-and-wife team approaching 80, they’ll probably want to sell 100 percent of the shares. If you want private equity to help you build the business, you’ll probably want to keep as much of the stock as possible. There are many variations of these possibilities, ”said Gerald.

What makes a business marketable for a buyer or investor?

  • Earnings history on the rise
  • Well maintained fleet and other assets
  • Strong management willing to stay for at least 18 months after the transaction
  • Good Record Keeping and Accounting Practices

Chronology of notable merger and acquisition transactions

2009 – Red Clay Capital Holdings buys Gray Line of Nashville, which was later sold to XMi, an entity of TNInvestCo. The company currently operates under the Tennessee Gray Line name.

2012 – Private equity firm Celerity Partners buys All Aboard America! and expands the Arizona-based operation over the next several years with the acquisition of Calco Hotard of New Orleans, Sun Diego Charter and the Denver operations of Horizon Coach Lines, later renamed Ace Express Coaches. Now the fourth largest coach operator in the United States and Canada, All Aboard America! was acquired by Tensile Capital Partners in 2016.

2015 – AFC Transportation of Houston and Echo Transportation of Dallas consolidate under new parent company TBL Group Inc., creating the 10th largest coach operation in the country and the largest in Texas.

2015 – New Flyer Industries Inc. acquires Motor Coach Industries International Inc. from an investment firm for $ 455 million. The agreement brought together the largest coach manufacturer in North America and the leading manufacturer of heavy-duty transit buses. Motor Coach Industries Inc. filed Chapter 11 in September 2008, wiping out hundreds of millions of dollars in debt, and exited Chapter 11 in 2009 to become wholly owned by KPS Capital Partners LP, a capital limited partnership. investment. In 2015, New Flyer, which has a relationship with KPS, purchased MCI.

2016 – Silverado Stages Inc. and Michelangelo Leasing Inc. merge to expand Silverado reach in California, Arizona and Nevada. Three years later, Silverado files for bankruptcy, attributing its downfall to the 2016 merger, “unsustainable, almost predatory” competition and a weak secondary market for the sale of surplus coach assets.

2016 – Bennett Capital Partners acquires Cavallo, an Illinois-based family business with 220 employees and a fleet of 100 coaches. A year later, Cavallo bought White Knight Limousine Inc. and, in 2018, Cavallo, 74, filed for bankruptcy.

2017 – CVG Group LLC purchases a financial stake in Starline Luxury Coach, A&A Motorcoach and Wheatland Express in the Seattle area. Starline is one of the largest coach and minibus operators in the Pacific Northwest.

2017 – Canadian companies Charter Bus Lines and Traxx Coachlines merge to create a dominant player in the markets of Western Canada and the Pacific Northwest.

2018 – Kincaid Coach Lines, one of the largest coach operators in the United States, acquires Red Carpet Charters, which served the Oklahoma City, Tulsa and Dallas / Fort Worth markets.

2019 – Scottish company Stagecoach, owner of Megabus and Coach USA, sells its North American operations to Variant, a California-based private equity firm.

2019 – GO Riteway Transportation Group acquires Lazers Bus Service of Marshall, Wisconsin. The acquisition provides a key strategic location for the expansion of GO Riteway’s operations in south-central Wisconsin.


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