(RLGT.PK) was started in 2005 by a hungry, smart and seasoned
executive in the transportation/logistics industry with an investor
presentation. Having worked for many years at [[CSX]] and Schneider
Logisitics, Bohn Crain saw the many facets and verticals of the
transportation industry hands on, but knew that he was born to be
an entrepreneur and not an employee for life.
Realizing he was not in Silicon Valley and did not have the next
Groupon (GRPN), he thought it only prudent to start where his
experience was -- transportation. Having worked at CSX in the
treasury/capital markets, he knew that the best businesses -- the
ones that yielded the highest valuation -- were those that had the
highest returns on invested capital. In the case of CSX, he was
talking about the company's non-asset based logistics/freight
forwarding segment. It was a proven model. Expeditors (
) and C.H. Robinson (
) were probably two of the best-performing stocks over the last 20
years in terms of ROE and share appreciation, and the opportunity
was just massive and about to get a lot bigger.
The transportation industry was regulated for many years, and
after de-regulation in the late 70s, the U.S. experienced massive
growth in what is now called independent shipping agents/freight
Some agents joined networks, or "franchises," where they
operated their own "stores" but paid in a percentage of their gross
profits/billings for access to superior buying rates -- the pooled
purchasing power of being on a "network." Other agents started
stores independently and eventually built their own networks.
By 2005, there were hundreds of shipping agent networks and
thousands of stations. What was unique about Crain's timing is that
companies were looking to get more efficient and having in-house
logistics/shipping, and sending out FedEx (
) or [[UPS]] was usually not the most efficient or cost-effective
way. A secular growth trend of outsourced logistics services was
looming, and many people were starting to figure this out.
Crain was actually approached by a number of PE firms to execute
this roll-up/growth strategy, but he walked away because he didn't
think he was getting enough skin in the game.
What was also unique about the opportunity was that many of
these independent shipping agents/networks were run by people or
families that started them 30 to 35 years ago. If the sons and
daughters of these owners didn't want to run the business, the
company would have to find a logical seller. Or perhaps the
shipping agent/network owner wasn't quite ready to retire but
wanted a potential exit strategy. But most small networks/agent
stations were too small for a financial buyer and would need more
importantly the right kind of strategic buyer.
Enter Crain and Radiant Logistics. In 2005, Crain raised just $4
million of capital in a reverse merger/PIPE transaction, and
Radiant completed its first acquisition of a freight forwarding
network called Airgroup. In September 2008, Radiant Logistics
completed its second acquisition, of Adcom. And, at the end of
March, the company completed its third acquisition of Distribution
What is unique about these transactions and this model is that
Radiant Logistics not only increases its buying power and its
competitiveness in the market place that produces revenue
synergies, but it also produces significant cost synergies. Each
network has its own IT staff/corporate G&A. In the most recent
Airgroup transaction, the company was able to eliminate over $1.5
million in costs. So if we look at the pro-forma math closely,
Radiant is really able to buy networks/agent stations at 3 to 4
times EBITDA (structured in 2 times cash and 2 times earnout) when
these businesses trade at 10, 12, 15, 20 times EBITDA in the public
market place. This resolves in a fabulous, unprecedented
opportunity to create shareholder value. And these companies
require almost no capex, making them almost infinite ROIC
If you thought the story couldn't get better, just wait. Radiant
is also able to poach/"onboard" agent stations from members who are
unhappy on other networks. The company has historically onboarded
three to four agent stations a year, and these can add anywhere
from 250,000 to 600,000 EBITDA to the business for
. Yes, for free. Crain provides no sign-on bonuses for stations
joining his network -- just a little bit of training to use his
platform. In fact, most agent stations/network directors buystock
when they sign on (because they get zero grants).
Now, get ready for the
piece de resistance
. Between 60% to 70% of Radiant is owned by "insiders." Crain
started with 15% to 20% of the company to execute on the strategy
and through open market purchases and Radiant's share buyback
program, has brought his ownership to over 40%. The next largest
holder is the single largest agent station holder, Doug Tabor, who
has been instrumental in sourcing new network deals and
opportunities to onboard new agents. In all the years I have been
investing, I have never seen an opportunity with the stars so
1. We have an industry that is fragmented in consolidation mode
and a very favorable public/private arbitrage.
2. A great business that has superior returns on invested
capital and yields high valuations in the public market place.
These businesses have also proven to be somewhat recession
3. Huge insider buy-in/skin in the game matched with a genius
capital allocator. He only takes a $200,000 salary and consistently
underpromises and overdelivers.
4. Huge operational leverage and at an inflection point in its
cycle. The business has found its stride and has accelerated its
organic revenue growth (purchasing power driven/stealing market
share) and is starting to see the powers of fixed cost utilization
corporate G&A flat, sarbox flat and so on.
5. This has been done
. Expeditors International of America executed on a similar
strategy in the '80s and '90s and was one of the best performing
stocks in terms of ROE and appreciation over that period.
1. Big time earnings beats.
2. AMEX uplist coming up.
3. Accelerating onboards.
4. Gets picked up by research.
Taglich Brothers posted a
(.pdf): 3.35 target on "9mm of ebitda and 282mm of revenue." This
assumes no onboards or no pickup in freight volumes. Also minimal
synergies with the deal. If you apply the same multiple they use on
a more reasonable adjusted EPS number of 0.25 to 0.35, you get $5
to $7 per share.
Market/consensus sees an underfollowed nano-cap that appears to
be expensive on trailing math.
What I See
A brilliant CEO who has worked doggedly to create a $70 million
business in a short period of time and is about to see the fruits
of his labor.
Radiant has stated that its existing book of business is about
10 million of EBITDA according to its most recent press release - 3
times debt EBITDA. The company has a history of underpromising and
overdelivering. I think that if the economy holds in 2012, Radiant
will earn over 31 cents in adjusted earnings, making the company
trade at a little less than 7 times forward. This is for a company
where the comps trade at 20 to 30 times forward EPS.
In Radiant, you are buying a phenomenal jockey in a great
biz/industry at a great price. This has See's Candies written all
Express-1 Expedited Solutions (
) (a direct competitor) just received $150 million from United
) founder (Brad Jacobs) to execute on Crain's strategy This is a
validation that we have a good macro opportunity. Brad Jacobs has
built two billion-dollar businesses previously, so his interest in
this space indicates he sees a massive opportunity.
But it also tells us:
1. Jacobs, a very smart and successful investor, is willing
toinvest $150 million to acquire the platform opportunity that
Crain saw years ago.
2. Shareholders of XPO have to suffer 60%-plus dilution in order
to have Brad at the helm. Crain is better and is already on board,
no below-the-market stock deals or warrant dilution. On the
contrary, Crain is a superb capital allocator and will buy back
stock when it's cheap and potentially use it as acquisitioncurrency
I am long
Buy the Dips in mREITs: Risk Profile Strong Despite