Forward Air announced Thursday it has entered a business combination agreement with Omni Logistics. The deal is expected to create a leader in the expedited less-than-truckload market.
The cash-and-stock transaction will give Omni shareholders $150 million in cash and a 37.7% equity stake in Forward. The consideration represents a $3.2 billion enterprise value for Omni.
Dallas-based Omni is an asset-light logistics provider focused on high-touch, expedited freight transportation. The company also offers forwarding, customs brokerage, and warehousing and distribution services. It has grown its customer base to 7,000 domestic and international clients from just 300 over the past five years. It has 4,500 employees across 21 countries.
The private company is majority-owned by private equity firms Ridgemont Equity Partners and EVE Partners.
Omni is currently a customer of Forward (NASDAQ: FWRD).
Omni is approximately the same size as Forward. It generated $1.6 billion in revenue and $181 million in adjusted earnings before interest, taxes, depreciation and amortization over the 12 months ended June 30.
The deal is expected to provide both asset-light providers greater scale to target the high-value, expedited LTL freight market, which Forward Chairman, President and CEO Tom Schmitt estimates to be $15 billion. He believes Forward has 7% share in that market currently.
Seventy percent of Omni’s customers ship some type of high-value freight currently. The deal is an extension of Forward’s current growth initiatives in that arena already in place.
Combined, the two companies have 300 locations, which includes Omni’s 40 terminals in the U.S. Forward has plans to open an additional 30 terminals in North America over the next five years. However, the transaction creates some overlap of cross-docking facilities, which will be removed from the network over time.
Forward will sell its precision expedited LTL service to Omni’s current domestic customers. The deal also provides a broader offering of logistics and supply chain services for both customer sets.
The addition of Omni complements Forward’s LTL, truckload, brokerage, final-mile and intermodal operations.
“Bringing together our organizations is a key stepping stone of the fourth and final phase of our Grow Forward journey to focus on high-value freight, develop an efficient operating network, implement strategic pricing discipline, and drive an expanded customer base,” Schmitt stated. “It accelerates our ability to make high-value, competitively priced freight accessible to more customers, all of whom will benefit from Forward’s renowned Precision Execution.”
Omni is expected to be accretive to Forward’s earnings two years following the close, which is expected to occur in the back half of 2023. Management called out cost and revenue synergies that are expected to equate to a run rate of $125 million in adjusted EBITDA by 2025.
Forward plans to insource Omni’s third-party LTL network and implement other cost-cutting measures. Approximately $75 million is expected to come from cost takeouts, $60 million of which will occur within six months of the closing. Revenue opportunities represent the other $50 million of the total.
With the synergies, the combined entity would have generated $3.7 billion in revenue for the recent 12-month period and approximately $600 million in EBITDA. (Forward generated adjusted EBITDA of $287 million over that period.)
Management was noncommittal on whether the deal would be dilutive to earnings in the first year.
Forward plans to refinance the debt of both companies as part of the transaction. It said it has lined up debt commitments of $1.85 billion to go along with a $400 million revolver. Total leverage will climb to 3.5 times trailing 12 months’ adjusted EBITDA (inclusive of the expected synergies). Forward is expected to deleverage to 2x within two years of the closing.
The lockup period on the sale of stock for certain Omni shareholders is at least six months and will be executed in stages allowing for a full release in one year.
Schmitt will continue as Forward’s chairman and CEO.
J.J. Schickel will continue as Omni’s CEO and will assume the role of president and director of the combined company.
Omni shareholders will designate three board seats.
Shares of FWRD were down 3.8% at 12:46 p.m. EDT on Thursday compared to the S&P 500, which was up 0.5%.
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