Roadrunner Transportation Systems Strengthens International Capabilities With Acquisition of Unitrans International

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Roadrunner announced the acquisition of Unitrans International, an international freight forwarder with a focus on cold chain solutions and other complex shipments. In our view, the deal is consistent with the company’s strategy to expand and strengthen its platform by acquiring asset-light transportation providers.

In particular, we believe this deal fits well with last year’s acquisition of Marisol as it builds out a more complete offering of value-added international shipping solutions. This is the second acquisition the company has closed so far this year (see our note from February 25, 2014), and we are encouraged that the pipeline remains robust. At $25, the stock trades at 16 times our 2014 EPS estimate and 13 times our 2015 EPS estimate, which continues to be attractive relative to the industry peers trading at 21 times 2014 and 18 times 2015, despite Roadrunner’s more rapid earnings growth profile. Therefore, Roadrunner remains among our current favorite transportation ideas.

Unitrans is a specialized international freight forwarder focused on cold chain solutions and mainly serving the life sciences, entertainment, high-tech, engineering, and aerospace industries. About 85% of the company’s freight is shipped by air, with the remainder going by ocean, and a small amount of revenue is derived from customs brokerage.

We believe this business is a solid complement to the Marisol acquisition completed in July 2013, which gave the company a presence in international freight forwarding but with more of a focus on customs brokerage. In our view, there are significant tie-in opportunities between the two businesses as well as opportunities to cross-sell between customer bases. In addition, Unitrans’s locations (Los Angeles, San Francisco, New York, Chicago, and Miami) help fill out the company’s footprint as Marisol is primarily located in the central United States.

In 2013, Unitrans generated roughly $84 million in revenue. The company has consistently generated top-line growth of about 8% to 10% annually, which is in line with our expectations for organic growth in the Transportation Management Systems (TMS) segment.

Unitrans’s operating ratio is expected to be about 94% to 95% based on a somewhat conservative estimate of final deal amortization. While this is slightly higher than the 90.4% operating ratio the TMS segment posted in 2013, we believe Unitrans has likely fared relatively well amid some industrywide margin headwinds given its higher-value and more specialized niche.

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