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June 09, 2014

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COMMENTARY 86 THE JOURNAL OF COMMERCE JUNE 9.2014 William B. Cassidy TRANSFORCE ON THE MOVE FOR THOSE WHO haven't been pay- ing attention to TransForce, Can- ada's largest trucking operator, it 's t ime to sta r t. The compa- ny's $310 million acquisition of M innesota's Transport America, a $350 million truckload carrier, underscores how big a force Trans- Fo r c e h a s b e c o m e i n No r t h American trucking. Most reporting on the deal this month missed an important fact: TransForce has increased reve- nue by more $1 billion, in U.S. and C anadian dollars, since 2009 — not the easiest five years for truck- ing and the U.S. and Canadian economies. Here are the numbers: In 2009, TransForce reported C$1.85 billion in revenue. At the end of 2013, that figure had increased 68.4 percent to C$3.11 billion, the equivalent of about US$2.9 billion. Some more numbers that help frame TransForce in terms of size: As of March 31, the company had 20,900 employees and independent contractors, 11,820 tractors and trucks and 425 terminals, including 106 facilities in the U.S. By revenue alone, TransForce should rank among the 10 largest trucking operators, probably just below Landstar, the $2.95 billion truckload operator that ranked eighth on the SJ Consulting Group/ JOC 2013 list of Top 50 Trucking Companies. If many people in the U.S. aren't too familiar with TransForce, that's partly because TransForce doesn't operate a big fleet of tractor-trailers emblazoned with the TransForce name and logo. The company truly is a holding company, with 59 oper- ating subsidiaries, each of which operates independently. Better known are the company's brands, such as TST Overland, Loomis Express (t he former domestic Canadian business of DHL), Dyna- mex, Canadian Freightways and Vitran. The company has swiftly and almost silently added companies and customers to its portfolio. Over the past 15 years, TransForce has acquired about 140 companies, according to John Heinzl, invest - ment reporter at The Globe and Mail in Toronto. "As it grows, TransForce looks for ways to cut costs and make its operations more efficient in a bid to boost margins," Heinzl wrote last month. "Its efforts have deliv - ered some impressive results for investors." TransForce posted an annualized return of 39.2 percent for the five years that ended May 2, he reported. More recently, TransForce's earn- ings have been squeezed. Adjusted net profit dropped 18 percent in the first quarter to C$19.9 million. Oper- ating profit dropped 15.3 percent in 2013 after rising 32.6 percent in 2012 and 29.2 percent in 2011, accord- ing to an analysis by SJ Consulting. Revenue in 2013 declined 1 percent, after growing 16.7 percent in 2012 and 34.4 percent in 2011. The squeeze hasn't slowed TransForce. The company made three major acquisitions last year — Velocity Express in the U.S., E.L. Farmer in the U.S., and Clarke Transport in Canada — and acquired Vitran in Canada this March. T ra nspor t A mer ica , set to become TransForce's 60th oper- ating company by the end of this month, is its biggest acquisition in recent years — the largest since its 2011 purchase of same-day courier Dynamex for $248 million. In most ways, the Transport America purchase continues the long-standing strategy set by Chair- man, President and CEO Alain Bédard: to seek out well-run com- panies, buy them and build them up for greater shareholder return. Transport A merica also offers Tra nsForce a bridgehead into new territory: the U.S. truckload market, where many large compa - nies increasingly aspire to acquire smaller competitors. "The truckload market in the U.S. is very different than the one in Canada," Reuters quoted Bédard as telling analysts on a conference call. The U.S. market is growing faster, he said, and there are more acquisition opportunities. The U.S. also offers TransForce more room for revenue expansion. As of last year, only 30 percent of TransForce revenue originated in the U.S., but Bédard sees more "organic g row th" in truckload markets south of the Canadian border. TransForce has plenty of room to expand in truckload — the smallest of its four core businesses in terms of revenue. Last year, TransForce's 24 truckload subsidiaries accounted for about US$535 million in revenue, including fuel surcharges — roughly 18 percent of TransForce's total revenue. The package and courier segment accounted for 40 percent of TransForce revenue last year; less-than-truckload, 20 percent; and logistics and specialized services, 22 percent. Add the US$350 million in rev- enue Transport America enjoyed in 2013 and TransForce will be a US$885 million truckload operator, about the 12th-largest truckload supplier in North America. There are plenty of other companies out there that could take TransForce's truckload sales closer to the $1 bil- lion mark, and beyond. JOC Contact William B. Cassidy at and follow him on Twitter: @wbcassidy _joc.

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