Jacobs-led investor group preps to take helm at Express-1 Expedited Solutions

Earlier this month, an investment group led by Bradley S. Jacobs, an entrepreneur and founder and owner of Jacobs Private Equity LLC, and Express-1 Expedited Solutions, a non-asset-based third party logistics (3PL) transportation services provider, said they have entered into an agreement in which Jacobs and a group of co-investors will invest up to $150 million in cash in Express-1.

With a focus on expedited transportation (its Express-1 Inc. unit), domestic freight brokerage and international freight forwarding (its Concert Group Logistics Inc. unit) and truckload brokerage services (its Bounce Logistics Inc. unit) for shippers in the retail, commercial, manufacturing, and industrial shippers, Jacobs has his sights set on building a multi-billion dollar transportation brokerage business in the coming years.

In 2010, Express-1 completed more than 144,000 transactions and had revenues of roughly $158 million, according to company officials. The company has a market value of $72 million.

When looking at possible companies to pursue, Jacobs told LM he was focused on finding an industry that was big enough to have a business plan that accommodated high growth, and he looked at industries that were big chunks of GDP, including education, government, healthcare, and transportation.

Taking control of and leading new companies is nothing new to Jacobs, given his track record. He has been at the helm of four major companies, including United Rentals, the largest equipment rental company in the world, where he served as chairman from 1997-2007 while growing it to a $3.9 billion company, and North America-based waste management company United Waste, which he founded in 1989 and sold in 1997 for $2.5 billion. Jacobs also has worked extensively in the oil industry, co-founding Amerex Oil Associates Inc. in 1979 and serving as CEO until it was sold in 1983. And in 1984 he founded Hamilton Resources Ltd., a global oil trading company, where he served as chairman and CEO through 1989.

“I looked at various plans to buy lots of trucking companies and saw some opportunities to create synergies and cost savings, but I was not entirely satisfied with returns on capital…and could not get to finish line with that on the asset-based side,” said Jacobs. “I did become very intrigued with brokerage, because Amerex was very similar to a truck brokerage company, with the same type of customer service and business model.”

At that point, Jacobs said he started to study certain companies like C.H. Robinson Worldwide on the truck brokerage side and Expeditor’s International of Washington on the freight forwarding side and saw a strong opportunity in these sectors, given how they were large, fragmented, and growing, with brokerage businesses generating profits and free cash flow even during a downturn.

Upon completion of deal, pending an August shareholder meeting, Jacobs will be the majority shareholder of Express-1 and chairman of the company’s board of directors, as well as serve as CEO. A Reuters report stated that current management at Express-1 will be let go, with current chairman of the board Jim Martell and CEO Mike Welch remaining with the company. Welch, according to Reuters will stay on the help with the company’s acquisition strategy.

Following meeting with Welch last December and having done due diligence on the industry over the last year, Jacobs said he was very intrigued with Express-1, because the company has its foot in freight brokerage, freight forwarding, and expedited, which are three of the four facets of transportation and logistics he was most interested in, with intermodal being the other.

“We looked at quite a number of companies, but Express-1 was the best fit,” explained Jacobs. “It was the right size and had a good reputation and good managers, was performing well and was not a fixer-upper. It also performed well during the downturn.”

Evan Armstrong, president of Stoughton, Wisc.-based supply chain consultancy Armstrong & Associates, said that this deal is a boon for Express-1.

“Brad Jacobs has a solid track record of rapidly growing companies and capitalizing on favorable inherent market dynamics,” said Armstrong. “Therefore, we would envision him using Express-1 as a platform to expand its non-asset based domestic transportation management footprint and potentially broaden its capabilities into international transportation management.”

Jacobs takes control of Express-1 at a time when trucking and air capacity are very tight and ocean capacity is slack.

Going forward, Jacobs said the combination of customers and employees are the most important part of the recipe for future success, explaining that he thinks Express-1 can serve customers better under new ownership as more capital is added to the business and expand it.

As an example, he cited an upcoming visit to Express-1 headquarters in Buchannan, Michigan to meet with the employees overseeing owner-operator recruiting in an effort to increase the pace of owner-operator recruiting and reduce turnover.

“On the expedited side, I want to recruit more owner-operators and increase the sales and support staff so there will be fewer [load] turndowns for shippers,” he said. “This will be key for customers that cannot find capacity fast enough. On the freight forwarding side, CGL has a blend of an agent model and a store model. On the agent model, it has 22 stations, and we are going to try another ten in the U.S., which would cover the domestic footprint, which means we will turn down less business. We are also going to expand the international part of CGL, which currently has two locations in Tampa and Miami. I plan to invest heavily in the international freight forwarding part to serve customers more comprehensively.”

Another area where Jacobs plans to significantly grow Express-1’s business is through acquisitions, with acquisitions serving as a “big” part of the company’s growth plan going forward, coupled with organic growth.

Express-1 officials noted that the U.S. trucking freight brokerage market is estimated at $50 billion annually and has more than 10,000 licensed freight brokers in the U.S., with 99 percent of them earning less than $200 million in revenue. And it added that the international air and ocean freight forwarding market is estimated at $150 billion annually, with the 10 largest firms representing roughly 40 percent of the sector’s market share.