Genesee & Wyoming to be sold to Brookfield Infrastructure Partners and GIC for $8.4 billion

A major freight railroad deal was announced this week, with Darien, Conn.-based short-line railroad carrier Genesee & Wyoming (G&W) Inc. set to be acquired by Brookfield Infrastructure Partners, a global infrastructure company in the utilities, transport, energy, and data infrastructure sectors in North and South America, Asia Pacific, and Europe, and investment firm GIC.

The purchase price of the acquisition is at around $8.4 billion, including debt, and it is expected to close by the end of this year or in early 2020.

“For our customers, employees, and Class I partners, the long-term investment horizon of Brookfield Infrastructure and GIC as seasoned infrastructure investors is perfectly aligned with the long lives of G&W railroad assets, which are integral to the local economies that we serve in North America and around the world,” said Jack Hellmann, G&W Chairman and Chief Executive Officer in a statement. “They are also fully supportive of our business plan, which will continue to be focused on safety, customer service, and growing our footprint to provide more opportunity for our people. We also expect this transaction will allow us to further enhance our business as we benefit from Brookfield Infrastructure/GIC’s expertise in real estate and technology, as well as relationships with their rail-centric/complementary portfolio companies.”

G&W is the largest North American-based short line railroad carrier, with a portfolio of 120 short line railroads, and it also has European and Australian operations as well. And through its global subsidiaries, the company provides transportation infrastructure services on more than half of its 26,000 kilometers of tracking, on which it provides access to its well-diversified customer base, according to company officials.

G&W has around 8,000 employees and 3,000 customers. The company serves myriad domestic and international geographies, including:

• G&W’s six North American regions serve 41 U.S. states and four Canadian provinces and include 114 short line and regional freight railroads with more than 13,000 track-miles;
• G&W’s Australia Region serves New South Wales, the Northern Territory and South Australia and operates the 1,400-mile Tarcoola-to-Darwin rail line. The Australia Region is 51.1% owned by G&W and 48.9% owned by a consortium of funds and clients managed by Macquarie Infrastructure and Real Assets; and
• G&W’s UK/Europe Region includes the U.K.’s largest rail maritime intermodal operator and second-largest freight rail provider, as well as regional rail services in Continental Europe; and
• G&W subsidiaries and joint ventures also provide rail service at more than 40 major ports, rail-ferry service between the U.S. Southeast and Mexico, transload services, contract coal loading, and industrial railcar switching and repair

While G&W is being acquired, it has a longstanding history of being the company that makes acquisitions, as it has made 17 acquisitions going back to 1997.

Its largest one came in October 2012, when it acquired RailAmerica for around $1.4 billion, which Hellman said at the time was the largest one in the history of G&W. When the acquisition was made, G&W said it would boost its ability to serve its industrial partners and Class I railroad partners, as well as yield significant synergies and provide strong leverage to the eventual economic recovery of the U.S. economy and create a powerful platform for future industrial developments along the railroads in the 37 states where G&W operates and conducts business. The two companies cumulatively accounted for 108 railroads at the time of the deal.

A noted freight railroad expert told LM that the sale of G&W did not come as a total surprise to the market.

“Going back to their investment conference about a year-and-a-half ago, G&W said there were [M&A] opportunities in North America, but that they were getting increasingly expensive and it was becoming a seller’s market,” said Tony Hatch, president of New York-based ABH Consulting. “But on the other hand, it said that the G&W portfolio was probably undervalued…and from then it set the clock ticking, in my opinion. There had been an assumption going back to this past spring that G&W was going to be sold.”

What’s more, Hatch said G&W had the problem of their own success, making it harder for it as a company to move the needle on a $30 million deal, which would be viewed as a big deal for other U.S. short lines like Watco, Omnitrax, Anacostia, or R.J. Corman, but be barely noticeable on its $1 billion portfolio. And this, he said some have speculated, may have caused G&W to take bigger gambles than other short lines, like its expansion into the UK.

“It is partially because the prices they were going to pay and the size of the deal were becoming limited for them, not for everybody else,” he said. “An infrastructure buyer is a different kind of buyer, in that they have a longer-term horizon that allows managers to not have to take big risks. And they can take a very low cost of capital and get a lower return than a public market owner could.”

In terms of the impact of this deal on shippers, Hatch said it is likely to be business as usual for them.