Express-1 Expedited Solutions Inc. (XPO) a small transportation service company with a market cap of $110M offers domestic and international freight forwarding services, premium truckload brokerage services, and expedited surface transportation. Revenue in 2010 was $157.99 million, which increased by over 50% year over year.
XPO stock has seen gains over 120% in one year. Over 50% of this growth has occured as the result of strong earnings between the dates of July 2010 and June 13th 2011. The other half of this growth has occured since June 14th of this year, as a result of Bradley Jacobs.
The stock had traded near the price of $2.15 for more than four months. The company was appointing new management and released quarterly earnings which displayed a net income growth of 34% but still no significant change in stock price.
On June 14th the company announced a $150,000,000 equity investment by Jacobs Private Equity with Bradley Jacobs leading the way. This investment makes Mr. Jacobs the primary shareholder for Express-1. Upon the completion of this transaction Jacobs will become the new CEO. Investors believed this news to be relevant as XPO broke through the $2.15 spot and hit $3.05 on June 15th.
The company will implement a 4:1 reverse stock split upon the closing of this transaction. Mr. Jacobs’ business plan involves making changes to management yet keeping the current CEO to aid in acquisitions. Jacobs said “I plan to build a multi-billion dollar transportation brokerage business over the next several years. Express-1 is an ideal platform, with prominent positions in expedited services, freight brokerage and freight forwarding. I’m excited about leading the company into its next phase of growth.”
First, will he succeed in building a multi-billion dollar company over the next several years? Let’s look at the facts. The size of the U.S. freight brokerage market is estimated at $50 billion a year and the size of the international freight forwarding market is estimated at $150 billion a year. So we can conclude the market is big enough to accommodate another multibillion dollar company such as Express-1 and Jacobs’ track record is impressive, everywhere he goes success follows.
There were two reasons in which the stock jumped as much as it did when the announcement was made on June 14th. First, a $150,000,000 investment which is much larger than the current cap. Second, Bradley Jacobs and his record of finding and turning companies into multibillion dollar corporations. United Rentals (URI) is the world’s largest equipment rental company. Jacobs grew the company into $3.9 billion in revenue before selling in 2007. Then there was United Waste Systems, which was the fifth largest solid waste management system in North America which also saw revenues over $1 billion.
Most investors who follow him or Express-1 now know of these two companies and his involvement with their success. However, many forget about Hamilton Resources, which he founded, that also saw revenues in excess of $1 billion and Amerex Oil Associates, which saw annual gross contract volume of approximately $4.7 billion. His record speaks for itself in saying he has the ability to build billion dollar companies.
"We're going to start off buying some small and medium-size companies but over time the plan is certainly buy some larger companies as well," he told Reuters in an interview.
Reuters "I've been meeting with roughly 100 acquisition candidates over the last two months and they are of all sizes, I've looked at companies as little as $10 million to $20 million in revenue, and I've looked at companies approaching $1 billion in revenue." said Jacobs.
Bradley Jacobs has the experience, intelligence, and deep pockets to back up his statements. He has built companies like this for years, since the late 70's. It is a classic example of when something is not broke you do not fix it. I have no reason to think he can not turn Express-1 into a multibillion dollar company by acquiring companies that will assist and expand operations.
The only question left for investors is what company will Bradley Jacobs buy first? I have been trying to figure out what direction he may go since I heard the news on June 14th. What we do know is Mr. Jacobs could have easily invested $500 million. He also could have became the CEO and majority holder for a lot less than $150 million. So why $150, it's not like the company has deep financial problems, Express-1 is a profitable company. So why pay $150, when he could have paid less. I believe Jacobs will purchase a company in the range of $130-$170 or a collection of companies that equal this amount. Mr. Jacobs is not going to want a company that is broke as he usually targets companies that are somewhat profitable. The industry/sector in which he targets will be unknown. Does he want to buy a company similar that is growing such as YRC Worldwide (YRCW) or does he go in a completely different direction and buy into bulk carriers, construction, business services, or logistics in other countries?
The bottom line is surprises should be expected as it will be impossible to know what direction he wishes to go with this company. Jacobs does know the business better than anyone, it is hard to find someone in management with his success in so many different markets with so many different companies. I do not think you can find a better situation anywhere in the market. You have a profitable company, good management, a proven business plan, and a new CEO who builds billion dollar companies at will. An investment in this company is not a short position but rather a retirement plan, I suggest only investing long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.