Hub Group announces plans to acquire Estenson Logistics

Oak Brook, Ill.-based freight freight transportation services provider Hub Group Inc. said yesterday its subsidiary, Hub Group Trucking Inc., has entered into an agreement to acquire Estenson Logistics LLC, a Mesa, Az.-based provider of dedicated freight transportation services, for roughly $306 million.

The deal is expected to close on or around July 1, according to Hub officials. When the deal is official, Estenson will be renamed as Hub Group Dedicated Services and operate as part of Hub Trucking, they added.

Established in 1999, Estenson is one of the largest dedicated contract carriers in North America, with more than 1,200 power units, more 5,000 trailers operating at roughly 120 customer locations, and 1,700 employees. For calendar year 2016, Estenson revenue was approximately $250 million.

On a conference call yesterday, Hub Group Chairman and Chief Executive Office David Yeager said that over the last two years Hub has expressed its desire to make an acquisition in the dedicated space, explaining that dedicated trucking is a service that is in demand from many of its customers, particularly retail and consumer products companies, which account for more than 70% of Hub’s revenue.

“We conduct an annual survey of our customers, and dedicated trucking consistently ranks at the top of the list as a service line that our customers would like to see Hub offer,” he said. “Dedicated trucking will enable us to offer a more complete multi-modal solution, which we believe will resonate with our customer base. Dedicated trucking is an attractive market benefitting from several positive industry trends. It will continue to see strong growth among shippers that outsource their non-core function, which we believe will accelerate due to the upcoming changes in regulatory requirements, as well as demographic changes in the driver market. It is a high value-added service that offers opportunities for logistics optimization and the ability to build strong, long-term customer relationships.”

The Hub executive said that over that last several years Hub has evaluated a number of opportunities in the dedicated space, and added that Hub is convinced it is adding a strong business with a proven record of excellent service, a safety-branded culture, impressive growth, and attractive margins.

And he said the Estenson business will provide another high value solution that Hub will be able to offer to its clients, with Hub intending to accelerate the growth of the Estenson business with opportunities from Hub Group’s diverse customer base.

“The potential for cross-selling synergies is substantial,” he said. “For example, we have identified about $2 billion in annual dedicated spend across Hub’s top 30 customers. Cross-selling synergies are expected to begin at $8 million in 2018 and ramp up to more than $100 million of total incremental revenue in year 5.”

Estenson Founder and CEO Tim Estenson and the rest of the Estenson management team will continue to lead the business.    

“We built our company from the ground up and we are passionate about a superior customer experience and employee satisfaction,” said Tim Estenson in a statement. “It was extremely important to me personally to find a home for us that shares those values. This is why we are extremely excited to be a part of the Hub Group family and I am looking forward to staying on board to see our company continue to flourish.”

Robert W. Baird and Company analyst Ben Hartford observed in a research note that this deal marks the first transaction under Hub’s previously announced $1 billion, five-year acquisition strategy it rolled out in February 2016, while adding it comes with a caveat.

“While we view Hub’s execution on that strategy positively, and the acquisition further diversifies Hub’s portfolio, we note that the new dedicated offering carries a higher capital intensity that its legacy core domestic intermodal offering has historically employed.”