Truck Stop

REVIEW SUMMARY
Company. Integrated Freight Corp., Lakewood Ranch
Industry. Trucking, logistics
Key. Trucking firm hopes to grow by acquiring successful firms nationwide.
At a glance. Click here for more information on Integrated Freight Corp.

Paul Henley's vision, to build a national trucking company with a focus on efficiency and proficiency, was about to implode late in the summer of 2008.

It had only been a few months since Henley leveraged a second mortgage and a hefty chunk of savings to put together a player in the fragmented $350 billion freight trucking industry. The company, Integrated Freight Corp., was run from an office suite in a Lakewood Ranch corporate park.

Yet Integrated's business model, to buy scores of small scale and successful independent trucking firms, relied heavily on two aspects in short supply in the financial meltdown of the day: Investment capital and growing independent trucking firms.

“The music stopped,” says Henley, “and we didn't have a chair.”

Henley and Steven Lusty, a trucking industry consultant who partnered with Henley in the firm, worked the phones.

They took out classified ads in industry trade publications seeking companies to buy. They met with investor groups. They flew to meetings all over the country. It was a near-futile effort to find firms ready to sell — and worth buying.

“It was terrible. It was a year of just hoping you could hang on,” says Henley, Integrated's president and CEO. “But luckily, we had several investors who believed in us.”

Now, two years since he launched the company, Henley is finally optimistic the worst days are behind it.

“I can't think of a better place to be right now,” says Henley, a Florida State grad who worked in mergers and acquisitions with a few Wall Street firms before Integrated. “Now we are like a band of brothers.”

The company has closed three acquisitions, another purchase could close by Christmas and two more deals are in a letter of intent to purchase stage.

The three companies in hand combined for $49 million in annual revenues in 2009. The three firms in pending deals represent even a larger swath for Integrated, with more than $100 million in 2009 revenues. Employees at all six companies, from dispatchers to drivers, will ultimately become part of Integrated. They will work under the Integrated brand and business model.

The deals also put Integrated on the map — literally. Its routes will swing from the upper Midwest to Texas and will stretch from California to the East Coast. If and when all six deals close, Integrated would have 775 tractors and 2,025 trailers under its domain that would carry a combination of dry and refrigerated freight and hazardous materials.

Moreover, Integrated executives predict big things for the next 18 months. The total revenue goal by mid-2012 is to have companies under the Integrated flag that total $250 million in annual sales.

Finally, instead of cold calls and classified ads, Henley and Lusty receive five calls a week from perspective sellers. They are in a position to be choosy, something unheard of two years ago when profitable firms were shrinking by the day, says Lusty.

Integrated is publicly traded, with shares over the counter (symbol: IFCR.) The firm reported $6.7 million in revenues for the quarter ended June 30, although it suffered a loss of $330,000. It was the fifth straight quarter it posted a loss.

Perfect template

The losses, while not insignificant, are overshadowed by Integrated's most recent acquisition, says Henley. That would be the Oct. 12 purchase of Wichita, Kan.-based Bruenger Trucking Co. The deal, which is expected to close by the end of the year, was key for more than its routes and trucks, say Integrated executives.

“They could have chosen anyone to go with,” says Henley. “The fact that they chose us was a major watershed moment.”

The guts of the company fit the Integrated purchase template nearly perfectly, which Henley also values.

For one, Bruenger, one of the largest refrigerated and dry freight operators in Kansas, meets a key Integrated checkmark because it's a market leader. The company, with $21 million in 2009 revenues, would also add 160 tractors, 187 refrigerated units, 30 dry vans and a team of drivers to Integrated's portfolio.

Bruenger passes two other key metrics Integrated seeks in acquisitions: It's profitable and it's a cultural match to the other companies it has already bought. “We've had groups that we've walked away from because it wasn't a cultural fit,” says Henley.

On the financial side, Bruenger's earnings before interest, taxes, depreciation and amortization (EBITDA) was $3.8 million in 2009. The EBITDA measurement is important to Integrated because it's commonly used to compare profitability between firms.

Bruenger has been family-run since 1936. Like Integrated, it puts an emphasis on safety and employee retention and morale.

iPads and iCabs

Henley hopes to make many more purchases like the one for Bruenger. To get there, he will rely mostly on the institutional knowledge brought by Lusty, a onetime truck driver who became an independent turnaround specialist for trucking firms nationwide.

“I typically go into a situation that's bad,” says Lusty, Integrated's chief operating officer. “I know what all the wrong things to do are.”

Integrated's template takes the company through the acquisition period. Next, Lusty developed an operations model he hopes will match some of the industry powers, such as Jacksonville-based Landstar and Phoenix-based Knight Transportation.

Two keys to the model, says Lusty, are safety and technology.

On safety, the company recently invested more than $1 million in an in-cab navigation and software system for its trucks. The GPS-based system allows drivers to find the best routes using real-time weather and traffic updates. “We've invested in what we feel is the best system,” says Lusty.

Even more technology: Lusty says the company eventually plans to give its route and logistics managers iPads, so they can use company software to track shipments.

From a safety perspective, the technology implemented in Integrated trucks includes a tracking system to monitor everything a trucker does, from braking too hard to an extra lunge. The system can pinpoint a certain safety issue a driver has. It can also improve safety through pressure. “It makes them safer drivers,” says Lusty, “because they know they are being watched.”

One step away

Henley hopes potential investors have watched Integrated's progress.

In addition to the acquisitions, the company also recently hired a comptroller, David Evins, who will likely be promoted to chief financial officer by the end of the year. Evins was most recently the CFO and an executive vice president for Prince Sports, a $100 million racquet and related sports equipment firm. Evins was also previously the CFO for Manatee County-based boat maker Chris-Craft.

Despite the company's recent momentum, Henley realizes challenges remain. That includes securing investors to fuel the company's growth plans. “At the end of the day,” says Henley, “trucking isn't the sexiest business.”

Henley willingly entered the supposed dull world of trucking and logistics after two decades at financial firms, including Dean Witter and Lehman Bros. He went out on his own in 2002, when he consulted for companies seeking to go public.

Many of his first clients were in medical services or consumer products. Henley described most of the companies as one step away, an FDA approval, for example, from greatness.

In 2004 and 2005, however, Henley worked on some deals for trucking firms. He discovered a solid industry where people made money every day by moving stuff. It reminded him of his first job after college, when he helped a family-run cement company in Clearwater launch a trucking firm.

Henley then heard from industry veterans the field was on the verge of a consolidation phase. He was sold.

“It really appealed to me,” says Henley. “I loved the people in this business.”

A Time to Buy

Lakewood Ranch-based Integrated Freight was formed to buy trucking companies nationwide that together would form a trucking power. The company has closed three acquisitions since 2008, and three more deals are either in the closing or letter of intent to purchase stage.

The purchases include:

• Morris Transportation: The Hamburg, Ark.-based firm reported $18 million in 2009 revenues, with $1.2 million in earnings before interest, taxes, depreciation and amortization (EBITDA.) The company was one of Integrated's first two purchases;

• Smith Systems Transportation: Another early purchase, Scotts Bluff, Neb.-based Smith had $13 million in 2009 revenues. The company had 97 employees when Integrated acquired it;

• Triple C Transport: Doniphan, Neb.-based Triple C Transport helped Integrated grow its refrigerated goods customer base. The company, which hauled livestock in the early 1980s, had $18 million in 2009 revenues;

• Bruenger Trucking: A few other firms were interested in Wichita, Kan.-based Bruenger, so Integrated executives consider the acquisition a watershed moment in its evolution. A deal for Bruenger, which had $21 million in 2009 revenues, is expected to close by Christmas.

Integrated also recently announced it signed letters of intent to acquire two more firms.

One of those companies is Medford, Ore.-based Cross Creek Trucking. Cross Creek, founded in 1989, is a family-run firm with a fleet of 115 trucks, 170 refrigerated trailers and 20 dry utility trailers. It mostly serves the West Coast and had revenues of $28 million in 2009.

A second firm Integrated targeted is Rockwall, Texas-based Texas Star Express. Texas Star, founded in 1987, has 315 tractors and 1,100 trailers. The firm projects at least $58 million in 2010 revenues.

Integrated executives expect a deal to be worked out to buy Cross Creek by early December. A deal for Texas Star could be announced by early 2011.