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PE-Backed Truckload Carrier Files Bankruptcy. 339 Trucks Impacted.

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In a November 2018 article, private equity firm KJM was described as being "unlike the others" and "having daily involvement in the support functions of the business, allowing the company to implement growth initiatives and improve the customer experience."

Unfortunately, for the 450 employees and stakeholders of Cold Carriers, a truckload roll-up assembled from four of KJMs acquisitions, the PE firm was not successful in running an asset-based truckload portfolio and filed Chapter 11 bankruptcy on Friday.

Cold Carriers was formed when KJM consolidated it's acquisitions of Gantt Trucking, Sunco Trucking, Blue Sky Trucking, and Interide Transport, into a single operating parent. The company had 339 trucks, according to FMCSA data.

KJM is a private equity firm based in Orlando, Florida, that was launched in 2014 and made six acquisitions, five of which were in the transportation and logistics space. The firm says it is focused on acquiring private companies with EBITDA between $3 million to $10 million and revenues between $20 million to $100 million. 

KJM's first transaction was Gantt Trucking, an asset-based carrier out of Lexington, South Carolina. The 102-truck carrier is a temp-controlled carrier with operations east of the Rockies. KJM bought the company in April 2015.

The oldest carrier in the portfolio, Sunco, was previously owned by one of the most successful and powerful trucking families in the industry. The refrigerated carrier has 159 trucks and 282 trailers operating out of Lakeland, Florida. Sunco started operations in 1974 and was acquired by Watkins Associated Industries in 1997.

Watkins Associated Industries was the post-deregulation truckload spin-off of Watkins Motor Lines that included Land Span and Highway Transport. When Watkins acquired Sunco, it was combined with the temp-controlled truckload operations of Land Span. Later, in 2002, Sunco went onto acquire the Southeastern division of Rocor.

When Watkins Motor Lines was sold to FedEx Corporation (NYSE: FDX) in 2006 for $780 million dollars, the truckload assets remained part of the Watkins family for a few years. In 2012, Land Span was sold to Celadon and Sunco was renamed Watkins Refrigerated until KJM purchased it in September 2016, where it reverted back to operating under the Sunco brand. Watkins Industries is still around, but it is no longer involved in trucking or logistics. 

Interide, a Salt Lake City, Utah-based truckload carrier has 135 trucks. Interide was acquired by KJM on December 22, 2016. The carrier has been operating since 1984 and stayed primarily in the Western half of the U.S. When KJM acquired Interide, they also purchased 30-truck operator Blue Sky Logistics, and consolidated the operations into Interide.

KJM is a buyout shop, using a leveraged buyout model of acquisitions. Leveraged buyout is a term that describes a firm using debt borrowed from banks and investors to acquire companies in the hopes of buying assets at a significant discount to the market. 

In many of these models, the operating companies will be loaded up with debt and required to service it on behalf of the private equity group. It works in businesses that throw off significant amounts of cash flow, but rarely works in trucking due to the operating nature and cash-flow cycles of the business. 

Equipment depreciates quickly and must be maintained and asset-based trucking is one of the most cyclical industries on the planet. Private equity firms have a spotty track record in buying asset-based truckload carriers and making a profit.

Earlier this year, HVH Transportation of Colorado and Falcon Transport of Ohio shuttered their doors, after their private equity groups cut off funding. In 2019, at least 3,085 drivers have lost their jobs when the trucking company they were working for shut-down.

Often times, private equity take over a truckload carrier in one of two situations: when a family that operated the carrier decides to exit or when there is a forced liquidation (bankruptcy or bank recapitalization). When founders leave the company, they are often replaced by management appointed by a PE firm that are not familiar with how to run a trucking company. These usually end poorly (the opposite is true of non-asset based trucking/3PLs. Private equity has a great track record in the 3PL industry, as non-asset transportation generates a ton of cash flow and doesn't require the reinvestment in assets). 

Holman Transportation of Caldwell, Idaho was also purchased by KJM in January 2016, but does not appear to be in the filing. Messages to Holman were unanswered at the time of publication.

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