Already trying to get out of one M&A deal, Forward Air is selling off its last-mile delivery business as it shifts gears further toward its trucking capabilities.
The less-than-truckload (LTL) and logistics services provider will sell its Forward Air Final Mile (FAFM) business to intermodal transportation and logistics management solutions provider Hub Group for $262 million in an all-cash deal.
The combined businesses will operate under the Hub Group Final Mile brand.
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The Final Mile unit provides residential last-mile delivery capabilities, and installation of big and bulky goods, with a focus on appliances. Final Mile has a network of 46 company-operated facilities and more than 640 employees that will transfer to Hub Group as part of the deal.
For the 12 months ended Sept. 30, FAFM generated approximately $289 million in revenue for Forward Air, which Hub Group says would more than double its last-mile business to revenues of approximately $470 million.
When including FAFM’s past year of sales under Forward Air’s ownership, last-mile delivery would make up 22 percent of total revenue at Hub Group, surpassing consolidation and fulfillment as the second largest sales driver at the logistics company.
“Our Final Mile business grew revenue over 150 percent since inception in 2019 and returned significant value to Forward’s employees, customers and shareholders,” said Tom Schmitt, chairman, president and CEO said in a statement. “We are pleased the Final Mile team has joined a first-class company and team of people. Corporate clarity remains a top priority as we enter the next phase of our Grow Forward strategy.”
Schmitt said in an October earnings call that Forward Air was undergoing a strategic portfolio review as part of this Grow Forward plan that would put more focus on its LTL business—a timely move given the demise of Yellow Corp.
“Every single supporting business line has to make the LTL business better and has to be essential for it, and it also has to live up to its own financial expectations,” Schmitt said in the call.
Like others in the space, the LTL division has benefitted from the Yellow bankruptcy. In the third quarter, weight per shipment increased 8 percent over year-ago totals. This total jumped in the fourth quarter through November, with weight per shipment increasing 11 percent, revenue per shipment excluding fuel increasing 2.6 percent and pounds per day increased 5.5 percent, all over the same period last year.
Forward will break out LTL into its own reporting segment starting in the first quarter of 2024. Earlier this month, the company announced a 5.9 percent general rate increase (GRI) on any shipments tendered on or after Feb. 5, 2024.
Phil Yeager, president and CEO of Hub Group, said that the acquisition will help the company grow its non-asset logistics segment.
The transaction is expected to be immediately accretive to Hub Group’s 2024 earnings per share. Hub Group provided the Final Mile senior management team with contingent compensation targets to incentivize their retention and further drive potential growth.
“We believe Hub Group’s middle-mile and final-mile expertise, combined with our unique appliance delivery capabilities, will unlock significant value for our combined customers and through this combination we expect to accelerate our growth versus what we have each done individually in the past,” said Scott Robider, senior vice president of Forward Air Final Mile.
Forward Air gets the last-mile division off its hands as it remains on the hook for a $3.2 billion merger with multimodal air, ocean and ground logistics service provider Omni Logistics.
Company stock plummeted 25 percent on Aug. 10, when the deal was announced, with criticisms from shareholders and freight forwarders alike suggesting that a merger would effectively turn many of its forwarder customers into competitors.
The logistics provider has since displayed buyer’s remorse. Forward hinted in October at reneging on the deal on claims that Omni didn’t meet certain pre-closing conditions and that its recent 2023 full-year financial forecasts were worse than expected. Omni fired back with a lawsuit to force Forward to the closing table.
Omni maintains it has met all closing requirements and that Forward is misconstruing a “what-if” scenario as a way for Forward to exit the merger. Forward filed a countersuit of its own to let it leave the deal.
A hearing on the matter is set for Jan. 19 in Delaware court.
Three former employees representing Forward’s shareholders are still contesting the transaction in a Tennessee court since they weren’t allowed to vote on the deal in the state.
