Equity Firm to Buy Quality Distribution In Proposed $800 Million Tank-Truck Deal

Quality Distribution Inc.

Tank carrier Quality Distribution Inc. has agreed to be acquired for about $800 million by private equity firm Apax Partners, amplifying the recent acceleration of mergers in the transport sector.

The deal, announced May 6, was valued at $16 per share, 63% above the closing price on Quality’s stock that day.

“Apax supports our strategy,” Quality CEO Gary Enzor said. “They will bring financial resources and expertise that will assist us as we expand Quality through internal investment and initiatives as well as disciplined acquisitions.”

It was the third major merger and acquisition announcement in a month. On April 7, FedEx Corp. agreed to buy Dutch freight and package operator TNT N.V. for $4.8 billion, and not long afterward, XPO Logistics reached a $3.5 billion deal to buy Norbert Dentressangle, another logistics company.

Quality Distribution, which ranks No. 34 on Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers, offers chemical logistics, energy logistics and intermodal services.

“I think this is a good deal — Quality’s core business is very strong,” BB&T Capital Markets analyst Kevin Sterling told TT, citing long-term growth potential in the chemical logistics market.

Donald Broughton, an Avondale Partners analyst, said, “Apax is going to get a winner. Quality generates a prodigious amount of cash. The company, its franchise and its management team have been woefully underappreciated for years.”

Sterling and Broughton noted that the company’s results have been hurt by investments in the energy exploration sector that has weakened in recent months.

Shares of Tampa, Florida-based Quality fell about 30% in the past 12 months, closing at $9.80 on May 6.

On that date, the carrier announced its first-quarter earnings, including an 18% drop in net income to $2.5 million, or 9 cents per share, hurt by a decision to exit two energy-producing regions as well as winter weather. Margins were helped by more shipments from North Dakota’s oil fields.

Revenue fell 2% to $230.4 million, hurt by $9.6 million less fuel surcharge revenue.

Its energy business lost $1.3 million before interest and taxes, compared with a profitable first quarter of 2014. Intermodal profit on that basis rose, and profit from chemical logistics declined.

Shareholders of Quality must approve the deal.

The company can entertain alternative bids in a 40-day period after a definitive merger agreement is reached with Apax, the companies’ statement said.

The sale price includes debt assumption of $328.9 million listed in Quality’s earnings announcement.

Apax is making its first venture into the transport sector after 67 deals since 2001, according to its website. Among its acquisitions was clothing retaiIer Tommy Hilfiger, as well as global investments in Europe and Asia.

Ashish Karandikar, a partner on Apax’s services team, said the company would benefit from organic growth and acquisitions as well as more financial flexibility as a private company.

Deutsche Bank AG and several other financial institutions are backing the deal.