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Hub Group's $95M Acquisition Is Path To Being A Last-mile Market Leader

Hub Group's $95M Acquisition Is Path To Being A Last-mile Market Leader

Intermodal marketing company Hub Group (NASDAQ: HUBG) announced Wednesday the acquisition of last-mile logistics provider NonstopDelivery (NSD) for $94.5 million. The Oak Brook, Illinois-based Hub Group said the acquisition provides it with a platform to become a top provider in the home-delivery sector.

Chantilly, Virginia-based NSD is a national non-asset-based final-mile provider specializing in basic and white-glove delivery of big and bulky items like furniture, exercise equipment and home improvement goods. The company uses an agent network with more than 170 locations to fulfill warehousing and distribution for large retailers and manufacturers. Local delivery companies are used for delivery, installation and assembly of products to all zip codes in the U.S.

"This acquisition delivers on our strategy to expand our offerings to provide an end-to-end solution for our customers' supply chains. We expect there will be significant opportunities to offer NSD's high-service last-mile delivery solutions to Hub's customer base," said Hub Group Chairman and CEO Dave Yeager in the press release.

On a conference call discussing the acquisition, Hub's management said that they have been targeting the final-mile sector for a while but struggled with the owner-operator model that many asset-based operations employ. The non-asset, agent model approach at NSD is what attracted management to the company.

NSD is on pace to generate $150 million in revenue and $10 million in earnings before interest, taxes, depreciation and amortization in 2020. The deal is expected accretive to Hub's earnings in 2021 with management indicating a $4 million operating income contribution on the call. The deal includes transaction and amortization expense of $6 million, including incentive comp for the current NSD leadership team which will remain on board with Hub. The deal was funded with cash on hand.

NSD has seen revenue jump 40% year-over-year in 2020 given the surge in stay-at-home spending during the pandemic. The company grew at a 10% to 15% annual pace pre-COVID. Management said revenue should continue to increase by a meaningful amount in the first four months of 2021, then moderate as the year-over-year comparisons become more difficult.

Management sees the acquisition as a good platform to grow into the final-mile sector. Hub plans to cross-sell the mode to their current customers, which they said will account for an additional mid-teen percentage revenue increase, above NSD's current growth efforts, in 2021. Further, they see strong organic growth opportunities as NSD's customers continue to invest in their distribution networks and they begin to expand the reverse logistics offering.

Lastly, management provided a brief update on their core intermodal business. Yeager said the core business is improving and that there is "ongoing strength in a lot of other areas in the country" other than the West Coast. They plan to finish 2020 in "strong fashion" as e-commerce demand remains robust.

"The NSD team is thrilled to join Hub Group. Hub Group and NSD have been working together for over 10 years managing our customers' middle mile logistics needs. We share a culture of service, integrity and innovation, providing a strong foundation for our two companies to come together to create additional value for our customers," said NSD CEO and founder Steve Senkus.

Shares of HUBG were up 2% midday compared to the S&P 500, which was flat.

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