Heartland Acquires Gordon for $300 Mln. to Expand West

This story appears in the Nov. 18 print edition of Transport Topics.

Heartland Express Inc. last week said it has acquired Gordon Trucking Inc. for $300 million, a move that expands its presence in the western United States.

The deal is Heartland’s largest acquisition, which includes $150 million in cash and stock and $150 million in assumed debt, and creates the fifth-largest asset-based truckload fleet with revenue of nearly $1 billion annually.

Heartland CEO Mike Gerdin said the move was designed to mesh Pacific, Wash.-based Gordon’s Western-oriented network, which generates 77% of its revenue, with Heartland freight, 82% of which moves east of the Rocky Mountains.

“We feel this really fits in well for both companies. This transaction is not about size,” Gerdin said during a conference call Nov. 12. “It is not about being the biggest carrier. It is about being the best carrier.”

Heartland, based in North Liberty, Iowa, ranks No. 47 on the Transport Topics Top 100 listing of the largest for-hire carriers in the United States and Canada. Gordon ranks No. 61.

The “transaction further consolidates the truckload industry at a time when opportunities to do such have been hard to find, and growth avenues have been limited by the difficulty finding drivers,” said Art Hatfield, an analyst with investment firm Raymond James.

In August, Swift, which ranks No. 7 on the for-hire TT100, acquired Central Refrigerated Service — No. 56 — for $225 million. Knight Transportation Inc., which ranks No. 31, has been attempting to acquire No. 52, USA Truck Inc.

Heartland and Gordon produced combined revenue of $968.6 million for the 12 months ended Sept. 30 and income, excluding interest and taxes, of $132.9 million.

Heartland accounted for 80% of that operating income. By revenue, Heartland’s total of $535.1 million was more than 55% of sales.

The combined operating ratio over the period was 89.9.

“The goal in the mid-to-low 80s [operating ratio] is an achievable goal,” Gerdin said. “We are going to look at every avenue we can to do that.”

He added, “Gordon has been very successful. We are not going to make overnight wholesale changes. Gordon is not a broken carrier.”

“From the beginning, I told Mike [Gerdin] that the owners were not willing to sell, but we would consider Heartland’s proposal because of our desire to be part of the best truckload carrier in the industry,” Larry Gordon, founder and chairman of Gordon, said in a statement.

As part of the transaction, Gordon is joining Heartland’s board.

Gerdin said the companies will keep operating separately while taking advantage of cost-saving and revenue-enhancement opportunities.

On the cost side, savings may be obtained by eliminating duplicate lots, combining service centers in cities such as Phoenix and St. Louis, merging some back-office activities and doing more in-house maintenance.

Revenue opportunities include better geographical load matching and cross-selling by sales executives.

Gerdin said there are several similarities between the fleets, including a regional focus and expansions that began in 2005, with Heartland moving west and Gordon going east.

The combined business will generate 58% of revenue in states east of the Rocky Mountains and 42% in the West.

Both companies have experienced drivers, with 64% at Gordon having spent more than five years with the company.

John Larkin, an analyst at Stifel,  Nicolaus & Co., said the combination offers several new opportunities for Heartland, which hires only experienced drivers.

One is a new approach to recruitment, since Gordon secures about 15% of its drivers through arrangements with schools and a followup company training program.

In addition, Heartland now will have the ability to offer refrigerated service, Larkin said, which customers have been seeking for years from the buyer.

Gordon’s turnover rate is “well below industry average” and is lower than Heartland’s, and the Gordon fleet is more fuel-efficient, Gerdin said. He did not provide details.

As part of the deal, Heartland anticipates $60 million in annual tax savings from this transaction. Heartland said it will use $95 million of its $250 million credit agreement to complete the transaction.

The $40 million stock component will make the Gordon family one of Heartland’s largest shareholders. There is a provision for the seller to earn an additional $20 million based on future operating income improvements.