M&A folks were never going to get rich off of Johnnie Bryan Hunt. From the founding in 1961 of the company that bears his name, Hunt vowed to grow it, as much as possible, in an organic manner. From 1991 until yesterday, J.B. Hunt Transportation Services Inc. (NASDAQ:JBHT) had made just two acquisitions.
Chasing opportunities in dynamic, high-growth and non-legacy territory like last-mile delivery requires a different approach, however. So Hunt went shopping for the third time in nearly three decades, announcing today it had spent $100 million to land Cory 1st Choice Home Delivery, a New Jersey-based company specializing in residential deliveries of big and bulky items that go by the “large format” industry term. Large-format deliveries that require two-person teams are a $15.5 billion annual business, according to data from consultancy SJ Consulting. Of that, $8.9 billion is handled by for-hire transport and the rest by private fleets.
Deliveries of heavy goods ordered online generates more than $9 billion a year, and is growing rapidly as more manufacturers and retailers throw open more of their stock-keeping units to digital transactions, according to SJ data.
The acquisition, funded through Hunt’s revolving credit line, pushes the Lowell, Arkansas-based company deeper into the last-mile delivery segment. Most importantly for Hunt, the deal provides a stepping stone into the $5 billion and growing furniture delivery sub-segment, which has been Cory’s bread-and-butter since it was formed in 1934.
Hunt’s final-mile business has been focused on appliance delivery and installation, and it was “always running up against Cory” when trying to sell to furniture prospects, Nick Hobbs, president of Hunt’s Dedicated Contract Services (DCS) unit, said in a question-and-answer session on Friday with Patrick Cory, Cory’s CEO.
Cory, which had been privately held, will become a part of Hunt’s dedicated unit. It will operate under its own brand, at least for the time being. Final-mile is also part of the dedicated unit. With Cory in the fold, Hunt will operate more than 100 final-mile locations with 3.1 million square feet of warehouse space. Cory operates 14 warehouses.
The DCS business unit itself was bulked up in July 2017 through the $136 million acquisition of dedicated carrier and pool distribution specialist Specialized Logistics Dedicated LLC. The acquisition, among other things, meant that Hunt’s customers could more easily deploy more big and bulky e-commerce shipments into its network.
Hunt projects 2018 final-mile revenues will surpass $350 million. Of that, $50 to $100 million will come from new business, it said. The company expects to oversee two million home deliveries in 2018. Cory operates through a network of more than 1,000 independent drivers and makes about two million deliveries a year.
In the Q-and-A session, Cory said his company has long relied on internal financing, and has found it difficult to capitalize on potential opportunities requiring sizable additional capital. Today’s furniture buyers demand a breadth of services the company could not have offered on its own, Cory said. For example, Cory had to turn down requests to serve certain long-haul markets. With Hunt’s resources, it can provide services that in the past it had to turn away from, he said.
Last January, Hunt announced a nationwide expansion of a program making dedicated, last-mile services available to large retailers whose volumes justify the need for dedicated support. The service had been piloted in 15 high-density markets with four large retailers. In December, Hunt added five of Daimler’s AG’s FUSO eCanter electric-powered medium-duty box trucks to its fleet, the first time the company has ever utilized electric vehicles.
Cory’s annual revenues were not disclosed. Valuations of the company ranged anywhere from 5X EBITDA to 15X EBITDA, according to a person familiar with the acquisition discussions. Whatever the actual multiple turned out to be, the person said there is little doubt that Cory sold at a rich valuation. “It shows the high level of interest in last-mile logistics,” the person said.
John G. Larkin, an investment banker and transportation and logistics specialist at the investment firm Stifel, surmised that Hunt paid between 8X EBITDA and 10X EBITDA for Cary. When asked how he arrived at that number, Larkin said that “I doubt Hunt would go to 11 or 12X EBITDA for any acquisition.”