Forward Air sells final-mile unit to Hub Group for $262M
Forward Air announced Wednesday that it sold its final-mile business to Hub Group for $262 million. The deal comes as Forward refocuses its efforts on increasing share in the premium less-than-truckload market.
Forward Air Final Mile (FAFM) has 46 locations and more than 640 employees, which will transfer to Hub Group (NASDAQ: HUBG), a news release said. The unit generated $289 million in revenue for the 12-month period ended Sept. 30., mostly from the delivery and installation of large appliances.
On its third-quarter call, Tom Schmitt, Forward’s chairman, president and CEO, said the company was undertaking a “strategic portfolio review” and potentially selling noncore assets that don’t fully support its LTL growth plans.
“Our Final Mile business grew revenue over 150% since inception in 2019 and returned significant value to Forward’s employees, customers and shareholders,” Schmitt said. “We are pleased the Final Mile team has joined a first-class company and team of people.”
In a separate statement, Hub Group said the acquisition of FAFM will more than double final-mile revenue on its platform. It said the deal was its largest nonasset transaction in company history. It expects FAFM to be immediately accretive to earnings starting next year.
“We are excited to welcome the Forward Final Mile team to Hub Group,” said Phil Yeager, Hub Group president and CEO. “Through this transaction, we will continue to grow our non-asset logistics segment and deepen our value to our customers through the addition of this excellent team and their best-in-class appliance capabilities.”
FAFM’s senior management team was provided contingent compensation targets to “incentivize their retention and drive continued growth,” Hub Group’s release said. FAFM will operate under the Hub Group Final Mile brand.
The transaction comes amid uncertainty around Forward’s (NASDAQ: FWRD) controversial merger attempt with freight forwarder Omni Logistics.
In August, Forward announced plans to acquire Omni, which would expand its efforts to remove the middleman and sell LTL services directly to shippers. However, the deal received immediate backlash from shareholders, who were not afforded a vote on the proposed transaction.
Shareholders have said the deal is too expensive and adds a significant amount of leverage. They have also voiced concerns with Forward’s growth ambitions outside of its legacy third-party sales channel, which potentially pits it as a competitor to existing customers.
An announced deal price of $3.2 billion (currently closer to $2.6 billion given the sell-off in Forward’s stock) includes the assumption of $1.5 billion of Omni’s debt.
The deal is being challenged on two fronts.
Forward has alleged Omni hasn’t met certain pre-closing conditions and that its recent financial targets were worse than expected. It has asked a Delaware court to let it out of the deal.
Omni maintains it has met all closing requirements and that Forward is misconstruing a “what-if” scenario as a way for Forward to exit the merger. It has asked the court to force Forward to the closing table.
A hearing on the matter is set for Jan. 19.
Forward’s shareholders are still contesting the transaction in a Tennessee court.
“We believe Hub Group’s middle-mile and final-mile expertise, combined with our unique appliance delivery capabilities, will unlock significant value for our combined customers and through this combination we expect to accelerate our growth versus what we have each done individually in the past,” said Scott Robider, senior vice president at FAFM.
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