Heartland Express to Acquire Contract Freighters Truckload Business for $525 Million

Acquisition will be Heartland Express’ largest, adding CFI’s storied brand, talented team, and cross-border expertise; CFI to continue under its existing brand, management, and terminal locations

Heartland Express will acquire the Contract Freighters non-dedicated U.S. dry van and temperature-controlled truckload business and CFI Logistica operations in Mexico (“CFI”) from TFI International, Inc. (NYSE: TFII) (“TFI”), for a cash enterprise value of $525 million, subject to certain adjustments. The term CFI does not include the CFI Dedicated or CFI Logistics U.S. brokerage operations (“TFI Retained Operations”), which are not part of the transaction.

Heartland Comments

Michael Gerdin, Chairman, President, and CEO of Heartland Express, commented: “We are thrilled to welcome CFI to the Heartland Express family of companies, where it will continue to operate from Joplin under its own brand and current leadership team. CFI has exactly what we look for as we expand – significant scale, a respected and recognizable brand, capable management, safe and experienced drivers, a strong asset base, and a complementary terminal network. CFI’s strengths in the north-south midwestern corridor will add to our driver and customer capability, and their cross-border expertise will help us capitalize on the expected long-term freight volume benefits of nearshoring activity by manufacturers. At the same time, we can offer the CFI people a home that is entirely focused on their core – high-service, irregular route, asset-based truckload freight transportation. Over time, we expect to gain meaningful synergies and operate our consolidated business on a larger scale at our historical margins.”

TFI Comments

Alain Bédard, Chairman, CEO, and President of TFI, said: “This transaction is a true ‘win-win-win’ for TFI, for CFI, and for Heartland Express. CFI is a great company, but the U.S. irregular route truckload business has become a small part of our portfolio. CFI’s people have been a small part of big companies for the past 15 years, and we wanted to find them a permanent home with a leader in the asset-based truckload industry to show what they can accomplish. Heartland Express is a truckload industry leader, and they respect and support CFI’s brand, leadership, and drivers. Mike Gerdin and I were able to quickly see the benefits to all parties and come to fair terms. We could not have found a better match culturally and financially for this transaction, which will afford CFI the opportunity to flourish and allow us to redeploy capital and focus our U.S. based efforts on LTL, asset-light logistics, and specialized truckload units. We expect a smooth path to closing and wish our colleagues at CFI and Heartland Express only the best.”  

About CFI

Headquartered in Joplin, Missouri, CFI provides dry van and temperature-controlled truckload services to major customers throughout the U.S. and into Mexico and Canada. CFI was a pioneer in the cross-border Mexican logistics arena and remains one of the sector’s largest and most respected supply chain partners, with operations at five major entry points from California through Texas. CFI Logistica provides asset-light truckload and less-than-truckload services in Mexico, in particular serving as a distribution partner for several large U.S. LTL companies.

CFI owns its headquarters which covers approximately 200 acres in Joplin, along with strategically located facilities in Laredo, TX, West Memphis, AR, Taylor, MI, Sanford, FL, and Nuevo Laredo, Tamaulipas, Mexico. These six locations will be acquired by Heartland and bring the total to 30 owned terminals across the U.S. and Mexico.

Approximately 2,100 tractors and 8,000 dry van and temperature-controlled trailers. All tractors and trailers are owned except 93 tractors and 136 trailers. In addition, CFI contracts with approximately 250 independent contractors who provide their own tractors.

About the Transaction

The enterprise value of the transaction is $525 million calculated on a cash-free, debt-free basis and subject to certain adjustments. Under the purchase agreement, Heartland Express will acquire 100% of the equity of Transportation Resources, Inc., the parent of Contract Freighters, Inc. and the Mexican entities comprising CFI Logistica. The purchase agreement contains customary terms and conditions, including regulatory approval, as well as purchase price adjustments for net working capital and retention by TFI of liability for all of CFI’s pre-closing auto and workers’ compensation claims. The transaction is expected to close in the third quarter of 2022 and be immediately accretive to earnings per share.

For the twelve months ended June 30, 2022, CFI generated approximately $575 million in total revenue. Heartland Express estimates the enterprise value approximates 5x run rate adjusted EBITDA.⁽²⁾   The referenced period includes seven months of operations of the former D&D Sexton, certain costs associated with supporting the administrative functions of the TFI Retained Operations that will be phased out over time, the integration and subsequent exit of certain the TFI Retained Operations, and significant gains from selling excess equipment. Accordingly, this estimate is preliminary and subject to the completion of the carve-out audit of CFI’s historical operations, the completion of purchase accounting adjustments, the wind-down and replacement of transition services, and other factors. Actual results following a closing are likely to differ from this preliminary estimate.

Operating Plan and Synergies

Mr. Gerdin commented, “CFI will continue to operate from Joplin under its current leadership team and famous brand. Our first goal is to minimize changes experienced by drivers and customers. Next, we will work with CFI’s management to optimize the consolidated freight networks across Heartland Express, Millis Transfer, Smith Transport, and CFI, as well as enhance driver recruiting and retention, realize purchasing economies, and reduce overhead per truck. We believe CFI’s drivers will benefit from our extensive owned terminal network, in which we have invested millions of dollars to improve our drivers’ experience. As with every acquisition, our plan is to capitalize on each other’s strengths and improve consolidated profitability. Our goal is for our consolidated adjusted operating ratio⁽²⁾ to be 85.0% or below within three years after the closing.”  

Pro Forma Heartland Express

The acquisition of CFI, together with the recent Smith Transport acquisition, will make the consolidated Heartland Express group the 8^th largest truckload fleet in the U.S. and 3^rd largest based on irregular route, asset-based truckload carrier in the U.S. Pro forma expectations⁽¹⁾ include the following:

• Estimated annual total revenue of approximately $1.3 billion and estimated annual operating cash flow of approximately $260.0 million, as well as estimated total assets nearing $2.0 billion as of June 30, 2022.
• Approximately 5,550 tractors (including approximately 250 independent contractors) with an average age of approximately 2.0 years and approximately 17,800 trailers with an average age of approximately 5.6 years, substantially all owned.
• 30 owned facilities, strategically located near almost every major population and freight center in the U.S., with significant opportunities to reduce leased facilities and improve the driver experience.
• Diversified freight basket with over 95% contracted capacity and no single customer expected to be greater than 8% of revenue.

Financing

The transaction and related expenses will be funded using a combination of balance sheet cash and borrowing under a new $550 million credit agreement to be entered into at closing of the transaction. The credit agreement is expected to include a $100 million revolving credit availability and up to $450 million in term loans. The credit facility will be unsecured, mature in five years, and contain customary terms and conditions, including financial covenants. Heartland has received commitments to fund the facility from a consortium of lenders, including joint bookrunners JPMorgan Chase Bank, N.A. and Wells Fargo Bank, N.A. Immediately after the closing, Heartland expects to have a net leverage ratio of approximately 1.25x and approximately $160 million of cash and available borrowing under the credit facility.⁽³⁾  

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