How Hilco’s Monetization Engine Drove H19 to the Next Level
Steve Tanzi and Bryan Courcier join Steve Katz on the Hilco Global Smarter Perspectives Podcast Series to discuss the trucking industry, specifically Hilco’s Acquisition Solution for our provider of Asset Financing in the North American Transportation Industry.
Steve Katz 0:09
Hello again and welcome to the Hilco Global Smarter Perspective Podcast Series. I’m your host Steve Katz. Today we’re speaking with Steve Tanzi who heads up Hilco’s Performance Solutions team and Bryan Courcier, a Senior Vice President of Hilco’s Transportation and Construction Advisory within the Hilco Valuation Services Group. And we’re going to be talking about something that’s been in the news quite a bit lately, which is the trucking industry, specifically Hilco’s Acquisition Solution for our provider of Asset Financing in the North American Transportation Industry, which was at risk as a going concern. Just as a little quick background, Hilco’s Performance Solutions assist companies to simplify and streamline business processes and improve operational efficiency so that they can stay competitive and gain market share in this increasingly interconnected economy. And Hilco Valuation Services is one of the world’s largest and most diversified business asset appraisers and valuation advisors. With that said, welcome to the podcast, guys.
Steve Tanzi 1:06
Thanks, Steve. Really appreciate you having us.
Bryan Courcier 1:09
Yep, happy to be here.
Steve Katz 1:10
Absolutely. Absolutely. Well, it’s great to have you both on and, Steve, to kick things off today, I think it would be helpful if you could provide a bit of detail on how your team met Performance Solutions, Brian and his colleagues Evaluation Services, and then the other groups that Hilco such as the Receivables team, work together in general and how that benefits your clients and partners?
Steve Tanzi 1:33
Well, I think one of the key things about Hilco is that we have a lot of different groups that can provide unique services and can really offer a wide variety of solutions that can maximize their return no matter what their situation can be, in regards to Hilco performance solutions, we’re a traditional management consulting house that can come in and really help you improve your customer experience, improve your revenues or reduce your costs. And really, you know, get to you being a going concern, or in the cases where you’re a little bit more distressed, help you figure out the right path. And on our on our Valuation Services, which Brian is a key member of and leaves our transportation group, they really understand the assets and the values of the assets and the trends around those assets. And can really help an organization understand the value that they have, or where they might be able to free up some cash or or go through a monetization event. And the same thing with our receivables team, which was critical to the deal that we’ll talk a little bit about here in a little bit. But they really understand how to maximize the collection of your receivables and can help a client, you know, monetize those quickly or, or partner with them to collect those over time. And so really, we have a wide variety of services that we can provide our clients that really can provide them ultimate optionality to improve their value. And this can be in the case of a sale or as a going concern, or in the unfortunate event where they’re they’re looking purely at a liquidation. The other thing that really makes Hilco and Hilco is group of companies really unique is it can really put our money where our mouth is, and we can invest capital in situations that really weren’t make sense. And with the 19th Capital acquisition that we talked about, that really made sense for us, and we were able to help out the previous owner in a very difficult situation.
Steve Katz 3:20
Okay, well, certainly a very comprehensive set of services and solutions for our clients. I think that, as you said, is really what sets Hilco apart here. And, Steve, based on what I’ve read about the deal, specifically, it really seems like you pulled together an ideal solution that checked all the boxes for the client element fleet management, what can you tell us about the circumstances, first of all that led to Hilco’s involvement, and then some of the particulars about the solution that you were ultimately able to bring to the table under what seems like some very unusual circumstances because of course, this whole effort really started just as COVID-19 was hitting U.S.
Steve Tanzi 3:57
Yeah, I know, it was a very interesting point in history and time, and it was at the beginning of March in 2020. And if we kind of look back at that period, right COVID was just beginning to be introduced. At that time, the trucking industry as a whole was actually experiencing a little bit of a lot. Right, they were they were beginning to see some pressure on price. And so at the time before COVID kind of got into full force that the trucking industry was actually going in a direction that just wasn’t very positive. And and so the market was softening. And you could also look at one of the other large trucking lease providers Celadon had just gone bankrupt, and they had a very, very large fleet. And so all indications were that maybe trucking wasn’t the place to be. And the COVID hadn’t really kind of gotten into the full force across the industry. So it was really kind of a very pivotal point in time. But back in March, we were approached by an investment bank, who will handle lowkey, who had an opportunity to sell on 19th Capital. 19th capital was a truck leasing organization. And originally, they were a portfolio that was heavy in owner operators and owner operators are a unique group where they kind of come in and out of the market. And so they can tend to be a risky investment when you’re looking at leasing a vehicle over a long period of time. And so element had made the decision that they just didn’t want to be in the business, right, the market indicators looked to be trending downward 19 Capital had relationships with Celadon and actually had come out of Celadon. And like I said, they just gone bankrupt. So element of made the decision they want out of the business. So first, they were trying to sell the business. But they also announced that if they were unable to sell the business, they were just going to shut it down. And so we came in very quickly. And we were able to understand the full assets that they had available. And Brian and his team went out and very quickly, were able to assign a value to all of the assets and understand what element really had in terms of their trucking fleet. Also, our receivable team led by Jay Stone and Buddy Beeman, were able to very quickly look at the portfolio leases that element and 19 Capital had. And were able to figure out what that would look like over the course of history and what given the market conditions what they may or may not collect that. And given that they that element had made some inroads into terms of reducing their reliance on owner operators, which tend to be more risky, and move that to more fleet businesses, which are larger businesses, and you would think would be more sustainable into a market downturn. Also, the team that I lead the Hilco performance solutions, teams was able to put forward models and scenarios on saying what this business could look like and what it could look like in different scenarios, whether that be an ultimate liquidation scenario, or running the business or even looking at reinvesting and entering and purchasing new vehicles. As we know, the leasing business tends to be on very, very low margins. And so Hilco looked at this as purely an acquisition and something that we could run down over time, but potentially add additional assets to it. As we found out far more opportunistic buying, when you think about what element was really trying to do is they were trying to get out of the business. And they were trying to come up with a partner to do that very, very quickly. And Hilco was able to do that we got on the ground, like I said in early March. And we were able to close the deal by May 1. And that time was very quick. And I got cash in elements hands very quickly. But we’ve actually surpassed that record close with a deal that we just did recently, with Sutton Leasing, where we did a similar type of thing. But the other thing that Hilco was was able to do because we understand the assets because we were able to model what the future could look like we understood the lease portfolio, we were able to also get a partner who helped us finance the deal initially, in Colbeck. And again, close from that beginning of March timeframe to where we were operating the business at May 1st timeframe. So really a very unique thing and for element was about getting out of their portfolio quickly and monetizing those assets. But because we were able to run the business, we also were able to save their employees and really look at it in a very unique fashion.
Steve Katz 8:10
Wow, that’s, that’s terrific. Sounds like you really did check all those boxes, that element was focused on from the time from the timing, continuing to employ the their team are good, you know, a good portion of their team. So that’s, that’s fantastic. And, Brian, I know you’ve been standing by patiently. So just from your side instead, you know, Steve mentioned it a bit. But what were some of the key considerations in being able to first assess the condition of 19th Capital’s geographically dispersed fleet assets because I know those vehicles were all over the country and then to in delivering a highly accurate valuation under not only the tight timeframe that Steve talked about, but those unprecedented logistical circumstances during COVID.
Bryan Courcier 8:55
Yes, thanks, Steve. So because of Hilco’s resources, primarily in the space pertaining to commercial transportation, you’ve got a very large machinery and equipment appraisal firm headquartered up there in Northbrook that has the ability to dedicate a lot of resources in a short period of time to larger projects that are sort of under a tight timeframe. And that’s exactly what we did. We reallocated team members that spend every day in the field looking at industrial assets, including class a transportation assets, which was you know, 99.9% of the underlying collateral for 19th Capital. And so we had a team that in very short order, went out to the Indianapolis area and was able to inspect thoroughly about 1/3 of the fleet that we were looking to acquire. And so we were encouraged by the condition of the assets that we saw there physically on site. The company allowed us access to some of the operations personnel that gave us intel and insight into their maintenance practices and how they were looking after the assets that were there sitting stationary. And from there, our firm was able to extrapolate out through understanding of, you know, mileage and the customer base that they had leased to and taking a look at that the performance of that that lease portfolio makes certain assumptions about the care and maintenance of the trucks and the and the average mileage on a per unit basis. And we also knew that with two thirds of the fleet out there being operated on a daily basis, we’re able to recognize that they’re more than likely being maintained well enough to be mechanically sound and on the road and providing whatever services they’re committed to whether it’s short range deliveries, or coast to coast, logistical services provided in the retail and other industries. So the bottom line was, we were encouraged by the condition of the fleet. And because we have such a massive database at Hilco Valuation Services, we were able to take a look at the current circumstances with with the pandemic sort of bearing down on us and compare it back to other economic cycles as far back as the recession in 2008, through 2010 and 11. And understand that, if the collateral had reached a trough in value, we understood there was a there was an absolute bottom base our estimations off of and therefore move forward with some level of confidence in terms of what our risk palette was versus what was being asked by the seller, and it gave us a strong base for which to move forward in negotiations.
Steve Katz 11:44
Okay, great, great info there, Brian. And although we don’t have Jay Stone of Hilco’s Receivables on the podcast with us today, I know your teams all work very closely. So it would be great if you could touch on the role that his group played in the lease receivables process here, and how that contributed not only to the ability to bring a compelling acquisition offered element upfront, but also how those receivables efforts have led to the continued success that hook was having with the new opcodes
Bryan Courcier 12:10
Yeah, absolutely. So Hilco’s was ability to bring together several different opcodes within our Hilco Global Community allowed us to sort of meld together that comprehensive or holistic solution and Hilco Receivables was the third of the three main pillars that we brought to the table. Of course, you had Hilco’s Performance Solutions Hilco’s Valuation Services, that deal execution team relative to the value of the assets, and then Hilco receivable stepped forward and was able to even in a more condensed period of time versus physically inspecting the assets to understand the health of the continuing portfolio, the credit profile, understand where there were certain weighted risks relative to different customers and the investment that had been made from the previous company. And then what they were able to do with that is leverage the current employees come on into their team because they have had ultimately familiarity with the systems that the company utilizes for AR collecting billing on a monthly basis and communicating with their customers and maintaining those contractual obligations. And so they were able to really seamlessly step in gauge the health of the portfolio and then also start running it relatively seamlessly customer facing perspective. They really weren’t able to recognize any change in their service. Once Hilco’s receivables stepped in and and took things over Not only that, the customers were also able to continue to work with familiar faces and voices that they had been working with in the past that were legacy employees. So in that regard, superbowls provided a really seamless transition.
Steve Katz 13:58
Thanks, Brian, thanks for that. Very impressive solution overall. I mean, this is extremely comprehensive effort that you guys put forth on behalf of elements. And as you know, we’re all about sharing best practices in the podcast. So believe it or not, we’re running out of time. And to wrap us up, I thought it’d be great to ask you each to share the top three things that companies looking for a buyer and a strategically aligned operator, not only in transportation, but in any industry should be focused on when taking steps to identify the right partner. So Steve, let’s start with you, if you can give us three best practices.
Steve Tanzi 14:32
Absolutely. Steve, I think we look at this deal and really look at what our potential clients might be looking for in a similar situation is that is that does your potential partner really understand the value of the assets. And if you remember, again, COVID was very uncertain time. And a lot of people were kind of taking the wait and see approach. And so at Hilco, we really understood the value of the assets. We understood the marketplace. We were able to invest Others were taking a pause. So having that knowledge and understanding that knowledge across multiple asset classes, I think is really something critical for people that are looking looking to potentially sell or get out of get out. The other thing is, is your partner really an operator, can they understand how to run a business, and he’ll call performance solutions, we have practitioners that understand not only how to consultant advise, but can can step in and run the business. And this part of the success story here was really understanding the cost of operating this business, and right sizing it dont understanding the customer, and understanding what the customer really, really wants in the truck that you’re selling on the lease portfolio. And in the case of this business, they were maybe spending more time focused on bringing in new trucks and not focused on their costs, and making sure that they had that right size for their, for what their customers really, really want. And then ultimately, I think it’s the breath of solutions that you can provide. Many times that Hilco were asked the question question leads us down a path that’s very different from what the client was originally envisioning. And what it ultimately results in is more money in their pocket and more money for them. And so having that optionality and having a lot of groups that can look at it in a very different way, and a unique way to really provide a great solution for any any company that finds themselves in a situation.
Steve Katz 16:20
Thanks, Steve. Okay, Brian, your three best practices?
Bryan Courcier 16:24
Yeah, absolutely. So I think mine somewhat parallel Steve’s to start out, I would certainly recommend making sure that your buyers qualified financially, it has the ability to close and cut that check, it’s probably a large one that, you know, some can claim to be able to do so and have the solution for that very few can actually bring that to the table. And then also, you know, their ability to execute everything within the timeframe that’s required to close again, many tout the ability to go about all that’s required, including logistics and the amount of data that has to be processed in a condensed period of time, but very few actually end up being able to do so. Then I also say, if you’re going to engage directly with a buyer, and you’re going through that process, be prepared to share all of the information, all the financials, every aspect of your company needs to be visible to that party, in order for them to fully understand the value that they’re looking to acquire, I think mystery provides for, you know, a softening of purchase price more so than anything else. So you know, the seller needs to be absolutely transparent in order to allow the buyer to ascertain the full breath and depth of the organization they’re looking to take on. The third option I would recommend is, if at all possible, allow access to some key employees that will more than likely be retained in the transition. This also provides confidence to the buyer and allows for buyer to move forward confidently understanding that what they’re acquiring is not just a set of collateral, but there’s an organic operating company there and for them to have confidence in the management management group that they’re taking on, allows for them to move forward confidently with closing and funding. Those would be my recommendations.
Steve Katz 18:18
All right, Brian. Thanks. Steve, Brian, good stuff. And I just want to point out again, for those who joined us today, that while this particular acquisition of the opco, created to run it, maybe in the transportation sector and the trucking industry specifically, everything that we’ve talked about here, including those best practices, recommendations that we just heard is really equally applicable across any industry. So whether this topic has direct relevance to your organization right now, or you just like to learn a little bit more about what we’ve discussed here today. I encourage you to reach out to Steve or Brian for a conversation. So with that in mind, Steve’s email at performance solutions is [email protected] that’s S like solutions, T A N Z I and Hilcoglobal.com And Brian’s email evaluation services is B as in big old truck. C O U R C I E R at Hilcoglobal.com. Steve, Brian, it was a pleasure having you both on the podcast with us today. It was a super case to share. And I think the listeners will get a lot out of that.
Steve Tanzi 19:23
Well, thanks, Steve. Really great being here and sharing this experience with you.
Bryan Courcier 19:28
Yeah, thank you. Appreciate you having us.
Steve Katz 19:30
Yeah, my pleasure. And listeners. We hope that today’s Hilco Global smarter perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. Until next time for Hilco Global.
Transcribed by https://otter.ai