Truckload carrier Heartland Express Inc. said today it has acquired Interstate Distributor Co., a truckload carrier whose network overlaps strongly with Heartland in the western U.S., for $113 million in stock, debt, and cash.
Founded in 1933, Tacoma, Wash.-based Interstate operates in the west and southeast. Both carriers have sizable footprints in southern California, Oregon, the Seattle-Tacoma region, Phoenix, and Nashville, Tenn. North Liberty, Iowa-based Heartland said in a statement that it plans to combine the overlapping markets within the next 18 months. The deal is expected to close during the second half of the year, with the fourth quarter being the first period of combined operations.
Heartland said the combination would lead to improved density and asset utilization in the west, while Interstate's eastern operations will be strengthened by leveraging Heartland's larger operations there.
The move underscores the opportunity for consolidation in the fragmented $480-billion-a-year truckload market, where even the top carriers hold just single-digit market shares. Two of the largest, Swift Transportation Co. and Knight Transportation Inc., agreed in April to merge in a $6 billion transaction that is the largest in the industry's history. It also reflects truckload carriers' increasing desire to buy density as a means of capitalizing on the fragmentation. Several industry experts such as Benjamin J. Hartford, transport analyst at investment firm R.W. Baird & Co., expect the current truckload cycle to witness accelerated consolidation in response to a slew of regulatory, demographic, and technological changes.
Interstate's fleet consists of approximately 1,350 company tractors, 220 additional tractors from independent contractors, and 4,700 trailers. The company's tractors are, on average, 3 years old. Since 2012, Interstate had been part of the Saltchuk Group, a $3 billion Seattle-based private company that holds a myriad of transportation and distribution assets and is the largest privately held concern by revenue in the state. Interstate generated $352 million in revenue in 2016, making it nearly half the size of Heartland. It posted an operating loss in 2016 and expects to record an operating deficit in the first half of the year.
The acquisition is Heartland's biggest since it acquired Seattle-based Gordon Trucking Inc. in late 2013 for $300 million. The acquisition dramatically expanded Heartland's western operations.