Forward Air has retained two prominent investment banking firms to lead a formal sales process, people close to the matter have told FreightWaves. Pressure on the expedited trucking company’s board to sell has mounted in recent weeks in the wake of a messy merger with freight forwarder Omni Logistics.
An Oct. 7 letter from activist investor Alta Fox, which holds a 3% stake in Forward (NASDAQ: FWRD), called on the company to initiate a sales process. The letter said holders of approximately 25% of its stock were also seeking a change to correct Forward’s “misguided capital allocation and reckless oversight.”
Clearlake Capital, a 14% equity holder in Forward, changed its filing status from passive to activist with the Securities and Exchange Commission in August. Irenic Capital and Ancora Advisors, which combined hold a 7% share, have made similar calls for change.
Some holders have said a sale to private equity could garner a premium to the current share price of $36.56 (as of 3:40 p.m. EDT on Thursday). Forward’s stock started to fall shortly after the deal was announced in August 2023, plummeting 90% to a May low of $11.21. The recent bounce in shares is likely tied to speculation that the company could see a more immediate resolution, including a sale.
Activist holders have said private equity ownership would allow the company to cure its heavy debt load (incurred as part of the deal’s financing) and formulate a fresh go-to-market strategy away from the public eye.
Forward Air closed the second quarter with $1.7 billion in net debt, which was 5.2 times adjusted earnings before interest, taxes, depreciation and amortization. That level is considered very high even for a growth-oriented, acquisitive company. Forward has remained within its allowed debt covenant and guided to being cash flow-positive at some point in the back half of this year.
However, the integration of Omni and realization of forecast revenue and cost synergies appear to be taking longer than some shareholders are willing to stomach.
“You have an opportunity now to do the right thing by listening to resounding investor feedback and executing a formal sales process that maximizes value for all shareholders,” Alta Fox’s recent letter stated. “Taking this step will not only unlock the Company’s full potential, but also help reverse damage from the poor decisions that have plagued your tenure.”
Omni merger fraught with pitfalls
Forward’s acquisition of Omni appeared shrewd at first glance. It would double the size of the company and provide it with a direct-selling platform into shippers, something it had been struggling to create internally. Selling directly to shippers would remove the middleman, allowing Forward to double margins in its airport-to-airport transportation business.
However, Omni was a forwarding customer of Forward’s and a direct competitor to Forward’s other forwarding customers. Some of those customers pushed back immediately, concerned that Forward would use their client data when approaching shippers directly, potentially cutting them out of the transaction. They were also concerned that Omni would have better pricing with Forward as its parent and preferential access to Forward’s linehaul network.
Investors were miffed they weren’t given a vote on the acquisition. The deal was structured through numerous transactions in a move to circumvent a shareholder vote, a class-action complaint in a Tennessee court alleged last fall.
Investors were also concerned with a headline price tag of $3.2 billion, greater than Forward’s roughly $3 billion market cap at the time. The transaction also required Forward to assume Omni’s $1.4 billion in net debt and give its private equity backers – Ridgemont Equity Partners and EVE Partners – a 38% equity stake, which the complaint said amounted to a shift in voting control.
The acquisition ultimately closed in January, following efforts by Forward to break the deal, at minimally reduced terms. Since, Forward has made changes in the C-suite and to the board, and it continues to integrate Omni. However, some shareholders appear ready to cut their losses by pressing the company for a more immediate conclusion.
FreightWaves has reached out to Forward Air for comment.