Breaking: Comvest Partners In Process Of Selling SunteckTTS

This morning, July 24, Debtwire reported that SunteckTTS management is on a roadshow pitching the top 10 freight brokerage to potential buyers. Investment bank Piper Jaffray is working with private equity owners Comvest Partners on the deal, according to the report.

Comvest Partners, a middle-market private equity firm with $3.3 billion in assets under management, bought Sunteck Transport in a $52 million public-to-private leveraged buyout (LBO) in April 2013, and is now nearing the end of a normal private equity holding period, which typically last between four and six years. In January 2017, Comvest merged Sunteck Transport with TTS, creating a new entity, SunteckTTS, generating in excess of $1 billion in annual gross revenues.

SunteckTTS is reportedly seeking a 10x EBITDA multiple and recorded between $30 million and $35 million in EBITDA over the last 12 months. Lenders involved in the deal are offering about 5x leverage, Debtwire reported, considered near the upper limit of how much debt is prudent to put on a company. Highly leveraged buyouts have become more popular in recent years, according to Bain & Co.'s annual private equity report, with deals involving 6x leverage or more accounting for greater than 60 percent of all U.S. LBOs last year.

SunteckTTS has been active in the mergers and acquisitions space, filling out geographical white space and adding services. In October 2018, the company acquired HA Logistics, a San Ramon, California-based brokerage with locations along the West Coast. 

One aspect of SunteckTTS' business that may make it attractive to a buyer – especially another private equity group – is that it is largely an agent-based model. Agent-based brokerages foster an entrepreneurial spirit across a distributed network of franchises, allowing brokers to build their own businesses and keep most of their margin. A typical arrangement might allow an agency to keep 70 percent of its gross margin and pay 30 percent to the company, which provides back-office, technological and branding support. 

"Buyers could be looking for a play like GlobalTranz, where management bought back their agents' books of business and were able to double EBITDA in under a year," said Kevin Hill, director of research at FreightWaves.

In April, Providence Equity bought GlobalTranz back from The Jordan Company after just eight months. GlobalTranz executives said that they had been able to double the company's EBITDA during that time, at least in part by buying back agents. When a brokerage buys back its agents, it gets the roughly 70 percent of gross margin the agent had been keeping, and is able to drop most of it to the bottom line.

The risk of that strategy is that the agent may leave after the brokerage buys the book of business, but brokerages usually structure the deal in a two- or three-year earn-out and manage the transition to retain those customers.

FreightWaves has been watching SunteckTTS closely this month because online interest in the company has been spiking, as measured by Predata (SIGNAL.SUNTEKTTSCO). Predata measures online interest by tracking traffic to websites associated with a topic or company. Companies often see surges in online interest just before a major deal – whether an acquisition or restructuring – as financial players conduct research and perform due diligence. FreightWaves believes the spike in online interest in SunTeckTTS is directly related to management shopping the company.

Chart: FreightWaves SONAR

SunteckTTS did not respond to a request for comment.

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