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Q2 2015 Overview
While the overall economy, as measured by real GDP, increased 2.3%, in Q2 2015, the Trans-
portation and Infrastructure (T&I) industries have largely continued the growth trajectory
experienced since 2011. With the exception of freight volumes, and truck tonnage, T&I oper-
ational metrics monitored by EdgePoint generally outperformed the overall economy in Q2
2015.
4,534
0
1,000
2,000
3,000
4,000
5,000
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
(thousands)
Source: WardsAuto
374
0
100
200
300
400
500
600
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
(Units)
Source: General Aviation Manufacturers Association
1,187
1,000
1,200
1,400
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
(thousands)
Source: St. Louis Federal Reserve
132.5
100.0
110.0
120.0
130.0
140.0
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
(Index)
Source: St. Louis Federal Reserve
$1,058
$0
$300
$600
$900
$1,200
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
(millions)
Source: St. Louis Federal Reserve
$274.4
$0
$50
$100
$150
$200
$250
$300
$350
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
(millions)
Source: St. Louis Federal Reserve
Putting aside the spike in activity as a result of changes in capital gains rates in 2012, reported transaction activity in the T&I sectors
has remained consistent each quarter. Q2 2015 activity was characterized by a number of high profile deals across the T&I sectors.
Q2 2015 M&A activity in the Automotive industry was marked by
uncharacteristically high private equity interest. Of the approxi-
mately 20 reported transactions, five of the more high profile
deals were completed by formidable private equity firms, includ-
ing Bain Capital and Sterling Investment Partners. This suggests
to EdgePoint that Automotive, historically a segment consid-
ered relatively undesirable to private equity, increasingly repre-
sents a positive investment thesis to financial investors.
Two strategic transactions were notable in the second quarter,
including the decision of Magna to exit its interiors business and
the acquisition of a tool and die builder by Tesla Motors,
Inc. Struggling to be profitable in this segment, the sale of the
Magna interiors business to Grupo Antolin, if completed, will
create a $5.5 billion interiors company and give Grupo Antolin
the ability to serve better its primary customers in Mexi-
co. Demonstrating its need to ensure ample supplier focus to
meet demanding production requirements, Tesla acquired
Michigan-based Riviera Tool, its first acquisition, citing the need
to ensure production supply. This fact pattern of vertical inte-
gration, which runs counter to the supply chain philosophy of
the Automotive industry for the past 20 years, suggests to Edge-
Point that there is tightness in the supply chain such that acqui-
sition of non-core assets may be necessary in the future.
Aerospace M&A activity in Q2 2015 was seemingly driven by
high strategic rationale. GKN’s acquisition of Sheets Manufac-
turing, for example, was driven largely by GKN’s need for cer-
tain technology capabilities to fulfill a Boeing project. H-D
Manufacturing, a growing manufacturer of mission critical
components, established its Aerospace platform in the sec-
ond quarter through the acquisition of Firstmark Corp and
Precision Aero Corporation. Aerospace represents a very logi-
cal end market extension for H-D, whose core business was
energy consumables and motion control products. Finally,
the need for a channel to place more content on new aero-
space platforms was ITT’s strategic motivation to acquire
Hartzell Aerospace. With proven technologies in environ-
mental control systems, Hartzell Technology was viewed as a
logical product addition to ITT’s actuation, flow control, and
energy absorption business.
These transactions, and others, cause EdgePoint to conclude
that the pursuit of technologies and market access continue
to be the strategic motivation in the aerospace industry and
that emerging and nimble suppliers will be of strategic inter-
est to the largest industry participants.
Source: CapIQ, Press Releases
-25
25
75
125
175
225
275
Q2 '12 Q3 '12 Q4 '12 Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 Q2 '15
Engineering Rail Logistics Aerospace Construction Automotive
Source: CapIQ
Reported M&A activity in the construction sector was un-
noteworthy in the second quarter. Reported activity general-
ly constituted smaller regional transactions across a variety of
end markets, with visibly more transactions involving compa-
nies with an alternative energy construction emphasis.
Q2 2015 participants of the Engineering industry have fo-
cused on acquisitions to expand service offerings and geo-
graphic footprint. In an effort to deepen its environmental
capabilities, serial-acquirer WSP Global, Inc. purchased both
SPL Consultants, Ltd and Levelton Consultants in the second
quarter. Eager for access to the robust U.S. civil engineering
market, U.K. based RPS Group, acquired Klotz Associates. This
acquisition, the first in North America for RPS Group, demon-
strates the attractiveness of civil infrastructure spending in
the United States for European firms. Reported M&A activity
in Q2 2015 suggests that engineering firms are interested in
service offering expansion and new geographies.
The scarcity of core acquisition targets was evident in the first
half of 2015 through a number of international acquisitions
by U.S. companies. Genesee & Wyoming closed the largest
deal of the year with its acquisition of UK based Freightlin-
er. The strategic rationale for this transaction appears to be
synergy opportunity with the Australian business units and
greater interest in the significant intermodal activities of
Freightliner. EdgePoint understands that suppliers to G&W in
the U.S. can expect to see opportunities to supply Freightliner
as it gets integrated into the G&W supplier procurement pro-
gram.
The most active buyer in the first six months of 2015 was L.B.
Foster, who made three acquisitions that give insight into the
Company’s market direction. Chemical processing equip-
ment manufacturer Chemtec, NDT provider Inspection Oil-
field Services, and UK TEW Engineering represent non-core
investments relative to LBF’s traditional infrastructure materi-
als business. The transactions illustrate both the scarcity of
acquisition opportunities in the Company’s core markets, but
also its strategy to create market verticals within its infrastruc-
ture materials business for which to offer a greater spectrum
of products and services to existing customers.
Other international transactions in Q2 2015 included Wab-
tec’s acquisition of Spanish passenger train component com-
pany Metalcaucho. This transaction, when combined with the
announced Wabtec – Faiveley merger in August, illustrates
that Wabtec has high interest in the passenger transit market
in Europe. Considering the background of its President Ray
Betler, a former Bombardier executive, this is not surpris-
ing. The recent acquisition activity of Wabtec also continues
to highlight the shortage of North American rail investment
opportunities. One interesting takeaway from the Metalcau-
cho transaction was Wabtec’s tolerance for the automotive
element of the business.
Q2 2015 M&A activity in the Trucking and Logistics sector was
vibrant, with some high profile transactions. Radiant Logistics
closed three transactions in the second quarter, including the
$85 million acquisition of Wheels Group. All three transac-
tions served the purpose of filling capability gaps at Radiant,
including the addition of truck brokerage and air terminal
capabilities, to Radiant’s largely freight forwarding busi-
ness. XPO Logistics continued their acquisition streak, ac-
quiring drayage operator Bridge Terminal Transport in Q2
2015. Echo Global Logistics in a $411 million transaction,
seeking continued market share in the 3PL business.
While most transactions in the second quarter involved asset-
light companies, cargo shipping company Horizon was ac-
quired by Matson in a consolidation transaction seemingly
motivated to reduce the competitive landscape. Many ana-
lysts project that the transaction will have the effect of in-
creasing the cost of imported goods to Hawaii.
Source: CapIQ, Press Releases
Equity valuations for transportation and infrastructure investment, as measured by enterprise value (EV) / EBITDA multiples of the
publicly traded company universe, trended slightly lower in Q2 2015. As depicted in the charts below, valuation multiples, while
slightly lower, remain near record levels for each of the transportation and infrastructure segments.
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Source: CapIQ
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015Source: CapIQ
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Source: CapIQ
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Source: CapIQ
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Source: CapIQ
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Source: CapIQ
$-
$70,000
$140,000
$210,000
$280,000
$350,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
$-
$20,000
$40,000
$60,000
$80,000
$100,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
$-
$1,700
$3,400
$5,100
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
$-
$3,500
$7,000
$10,500
$14,000
$17,500
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
$-
$5,000
$10,000
$15,000
$20,000
$25,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
$-
$20,000
$40,000
$60,000
$80,000
$100,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
(millions)
Source: CapIQ
Revenue for the transportation and infrastructure industry, as tracked by the public company registrants, is beneath FY 2014 levels.
Currency woes and declining oil prices have affected the automotive, rail, and freight industry. However, public spending in civil in-
frastructure and defense have lifted the aerospace, construction and engineering sectors. Q2 2015 Automotive industry revenue is
5.7% lower than the prior year, the result of decreased international demand from a strong U.S. dollar. Q2 2015 revenue reported by
the aerospace industry was 1.6% higher than the previous year, the result of strong commercial aircraft deliveries. Both the con-
struction and engineering industries benefitted from large public works projects in the second quarter. Upgrades to airports, bridg-
es and railways, contributed to year over year increases of 14.9% and 13.4%, respectively. Rail industry revenue declined 5.2% year
over year due to the decrease in coal shipments. Trucking and logistics revenue declined 5.3% due to lower fuel surcharges.
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
FY 2015 FY 2016 FY 2017
Source: CapIQ 0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
FY 2015 FY 2016 FY 2017
Source: CapIQ
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
FY 2015 FY 2016 FY 2017
Source: CapIQ
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
FY 2015 FY 2016 FY 2017Source: CapIQ
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
FY 2015 FY 2016 FY 2017
Source: CapIQ -1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
FY 2015 FY 2016 FY 2017
Source: CapIQ
Industry analysts project continued growth in all T&I sectors through 2017. A variety of factors, including the stronger national
economy and increased infrastructure funding, are expected to drive revenue growth. According to analyst consensus, the Automo-
tive industry will experience a revenue decline in FY 2015 relative to the prior year, but will recover in FY 2016 and 2017 as replace-
ment demand increases and global currencies rebalance. Aerospace industry revenue is forecast by analysts to grow 2.1% per year
through 2017 as the demand for fuel efficient planes and the retirement of older vintage aircraft drives increase production. Con-
struction and engineering revenues are projected to decelerate after 2015, the result of projections for interest rates. After declining
modestly in 2015, analyst consensus is that revenue from the Rail industry will grow 5.5% and 4.0% in 2016 and 2017, respectively.
Analysts project that the west coast port strikes will impact revenue in FY 2015; however, the consensus is that Trucking and Logis-
tics revenue will return to normal growth in FY 2016 and FY 2017 as the shortage of available drivers results in an increase in rates.
According to IHS, light vehicle production will grow 1.5% an-
nually through 2017, driven by increased demand for vehicles
as a result of a stronger overall economy, lower unemploy-
ment, and a favorable wage growth environment.
Because of scheduled retirements, Boeing forecasts the need
for 7,890 new airplane deliveries between 2015 and 2034. The
deliveries are driven by the large portion of the installed fleet
that is nearing its retirement, as well as the demand for great-
er fuel efficiency.
Total freight industry revenue is projected by the American
Trucking Association to grow at 4.2% annually through 2017.
The increase is driven by projections for product consump-
tion and the international shipment of goods.
While the ABI index has trended lower over the past year, it
registered above 50 in Q2 2015, which is indicative of con-
struction expansion through at least the next 18 months.
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
2015 2016 2017
(millions)
Source: American Trucking Association
Projected T&I operational metrics are indicative and supportive of slow, but steady, revenue growth for the T&I industries. Both light
vehicle production and aerospace deliveries are projected to growth less than 1.5% per year through 2017.
5,000
5,500
6,000
6,500
7,000
7,500
2015 2016 2017
Source: Boeing
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
19,000
2015 2016 2017
(thousands)
Source: IHS
40
42
44
46
48
50
52
54
56
58
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
Q3'13
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q1'15
Q2'15
Source: Architecture Magazine
This market publication is not an offer to sell or a solicitation of an offer to buy any security. It is not intended to be directed to investors as a basis for making an investment
decision. This publication does not rate or recommend securities of individual companies, nor does it contain sufficient information upon which to make an investment deci-
sion. The information in this market publication was obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not to be construed as legal,
accounting, financial or investment advice. Information, opinions and estimates reflect EdgePoint Capital’s judgment as of the date of publication and are subject to change
without notice. EdgePoint Capital undertakes no obligation to notify any recipient of this market publication of any such change. The charts and graphs used in this market
publication have been compiled by EdgePoint Capital solely for illustrative purposes. All charts are as the date of issuance of this market publication, unless otherwise noted.
The rail industry indices may not be inclusive of all companies in the rail industry and is not a composite index of the rail industry sector returns. Index and sector returns are
past performance, which is not an indicator of future results This market publication is not directed to, or intended for distribution to any person in any jurisdiction where such
distribution would be contrary to law or regulation, or which would subject EdgePoint Capital to licensing or registration requirements in such jurisdiction.
Sell-Side Advisory
Laser Xpedited
Transportation
has sold to
Private Investment Firm
Sell-Side Advisory
Louis Perry &
Associates, Inc.
has sold to
CDM Smith
Sell-Side Advisory
SIFCO Industries, Inc.
has sold its Applied Surface
Concepts business to
Norman Hay PLC
Sell -Side Advisory
General Electric
has sold its
Rail Transit Parts
Business to Wabtec
EdgePoint is a leading investment bank and advisory firm specializing in middle market
merger, acquisition, divestiture, and corporate financing services for private business
owners and corporations. EdgePoint is a registered broker dealer and member of FINRA
and SIPC. With professional backgrounds in the country’s largest investment banks,
commercial banks, corporate development departments, and financial advisory firms,
EdgePoint professionals offer sophisticated transactional services to the middle market.
EdgePoint is a member firm of the Alliance of International Corporate Advisors (“AICA”),
an integrated global network of middle-market advisory and finance firms. With 200
professionals in 59 offices throughout the Americas, Europe and Asia, EdgePoint offers
its clients global perspective and capital market access.
To learn more about EdgePoint and our services, or to discuss the content in this news-
letter, please contact Paul Chameli at 216-342-5854 or at [email protected]
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