Expedited Trucking Company Advances with Sales Process
Forward Air is moving forward with its sales process, having engaged two prominent investment banking firms to lead the initiative, according to sources familiar with the matter. In light of recent challenges following a complicated merger with freight forwarder Omni Logistics, pressure on the company’s board to pursue a sale has intensified.
An activist investor, Alta Fox, which holds a 3% stake in Forward (NASDAQ: FWRD), sent a letter on October 7 urging the company to commence a sales process. The correspondence noted that holders representing approximately 25% of the company’s shares were advocating for changes to address what they deemed “misguided capital allocation and reckless oversight.”
Clearlake Capital, with a 14% stake in Forward, shifted its status from passive to activist with the Securities and Exchange Commission in August. Additionally, Irenic Capital and Ancora Advisors, who collectively own a 7% stake, have echoed similar calls for reform.
Some investors believe a sale to private equity could yield a premium over the current share price of $36.56 (as of 3:40 p.m. EDT on Thursday). Forward’s stock began declining following the initial announcement of the merger in August 2023, dropping 90% to a low of $11.21 by May. The recent uptick in stock prices is likely fueled by speculation regarding a potential swift resolution, including a sale.
Activist shareholders argue that private equity ownership could alleviate the company’s significant debt burden—incurred during the financing of the merger—and allow for the development of a new market strategy away from shareholder scrutiny. As of the end of the second quarter, Forward reported $1.7 billion in net debt, equating to 5.2 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), a considerable ratio for a growth-oriented company. Nonetheless, Forward has not breached its debt covenants and anticipates becoming cash flow positive in the latter half of this year.
The integration of Omni and the realization of anticipated revenue and cost synergies are reportedly taking longer than some shareholders would prefer. Alta Fox’s recent letter emphasized, “You have an opportunity now to do the right thing by listening to resounding investor feedback and executing a formal sales process that maximizes value for all shareholders. This step will unlock the Company’s full potential and help mitigate the impact of prior poor decisions.”
Challenges of the Omni Merger
Initially, Forward’s acquisition of Omni seemed strategically sound, as it would effectively double the company’s size and provide a direct sales platform to shippers—a service Forward had struggled to establish independently. Direct sales to shippers would eliminate intermediaries, potentially enhancing profit margins for Forward’s airport-to-airport transportation services.
However, concerns arose because Omni was both a forwarding customer and a direct competitor to Forward’s existing clients. Many of these clients expressed unease over potential data misuse, fearing Forward would leverage their information to gain an advantage in bidding for shippers. They also worried that Omni would receive preferential pricing and access to Forward’s logistics network.
Investor dissatisfaction mounted over being denied a vote on the acquisition. Allegations surfaced in a Tennessee class-action lawsuit, claiming the deal was structured to bypass shareholder approval.
Investors were also wary of the $3.2 billion deal price, which exceeded Forward’s market capitalization of approximately $3 billion at the time. The acquisition required Forward to take on Omni’s $1.4 billion in net debt and offered its private equity backers—Ridgemont Equity Partners and EVE Partners—a 38% equity stake, which critics argued was effectively a transfer of voting control.
The acquisition was ultimately finalized in January after Forward attempted to renegotiate the terms to more favorable conditions. Since then, the company has made changes to its executive team and board while continuing to work on the integration of Omni. However, some shareholders indicate they prefer to minimize their losses by advocating for an expedited resolution.
