Acquisitions |
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| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisitions | Acquisitions Expedited Freight Acquisitions
In January 2023, the Company acquired certain assets of Land Air Express, Inc. (“Land Air”) for $56,567. Land Air, headquartered in Bowling Green, Kentucky, offers a variety of less-than-truckload services including guaranteed, standard, exclusive, same day, hot shot and pickup and delivery, and operates in over 25 terminals across the United States. The acquisition of Land Air will accelerate the expansion of the Company’s national terminal footprint, particularly in the middle part of the United States, and is expected to strategically position the Company to better meet the current and future needs of customers. The acquisition was funded using cash flow from operations and proceeds from the Company’s credit facility. The results of Land Air have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Expedited Freight reportable segment.
On August 10, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Omni Newco LLC (“Omni”) and certain other parties. Omni, headquartered in Dallas, Texas, is an asset-light, high-touch logistics and supply chain management company with customer relationships in high-growth end markets. Omni delivers domestic and international freight forwarding, fulfillment services, customs brokerage, distribution, and value-added services for time-sensitive freight to U.S.-based customers operating both domestically and internationally. The Merger Agreement provides that the Company, through a series of transactions involving the Company’s direct and indirect subsidiaries (collectively with the other transactions contemplated by the Merger Agreement and the other Transaction Agreements referred to therein, the “Transactions”), will acquire Omni for a combination of (a) $150 million in cash and (b) (i) common equity consideration representing 5,135,008 shares of the Company’s outstanding common stock on an as-converted and as-exchanged basis (the “Common Equity Consideration”) and (ii) non-voting, convertible perpetual preferred equity consideration representing, if the Conversion Approval (as defined below) is obtained, an additional 10,615,418 shares of the Company’s common stock on an as-converted and as-exchanged basis (the “Convertible Preferred Equity Consideration”). The Common Equity Consideration will represent, as of the closing of the Transactions (the “Closing”) and before any Conversion Approval, 16.5% of the Company’s common stock, on a fully diluted, as-exchanged basis. If the Conversion Approval is obtained, the Common Equity Consideration and the Convertible Preferred Equity Consideration together will represent as of Closing 37.7% of the Company’s common stock on a fully diluted, as-converted and as-exchanged basis.
Prior to the consummation of the Transactions, the Company will complete a restructuring, pursuant to which, among other things, the Company will contribute all of its operating assets to Clue Opco LLC, a newly formed subsidiary of the Company (“Opco”). After giving effect to the consummation of the Transactions, Opco will be structured as an umbrella partnership C corporation through which the existing direct and certain indirect equityholders of Omni (“Omni Holders”) will at Closing (i) a portion of the Common Equity Consideration in the form of units of Opco designated as “Class B Units” (“Opco Class B Units”) and corresponding Series B Preferred Units (as defined below) and (ii) a portion of the Convertible Preferred Equity Consideration in the form of units of Opco designated as “Series C-2 Preferred Units” (“Opco Series C-2 Preferred Units”). Following the Closing, the Company will operate its business through Opco, which will indirectly hold all of the assets and operations of the Company and Omni. Opco will be governed by an amended and restated limited liability company agreement of Opco (“Opco LLCA”) to be entered into at Closing.
The portion of the transaction consideration payable to Omni Holders that is Common Equity Consideration will consist of (a) shares of the Company’s common stock and (b) Opco Class B Units and corresponding Series B Preferred Units that will be exchangeable at the option of the holders thereof into shares of the Company’s common stock pursuant to the Opco LLCA. The portion of the transaction consideration payable to the Omni Holders that is Convertible Preferred Equity Consideration will consist of (a) Series C Preferred Units that will automatically convert into shares of the Company’s common stock upon the receipt of the Conversion Approval and (b) Opco Series C-2 Preferred Units that will be economically equivalent to Series C Preferred Units and will automatically convert into Opco Class B Units and corresponding Series B Preferred Units upon receipt of the Conversion Approval pursuant to the Opco LLCA. If the Conversion Approval is obtained, the Convertible Preferred Equity Consideration will convert into (i) the Company’s common stock and (ii) Opco Class B Units and corresponding Series B Preferred Units.
In connection with the Transactions, the Company has agreed to use its reasonable best efforts to obtain the approval of its shareholders to, among other things, convert the Series C Preferred Units to the Company’s common stock in accordance with the listing rules of NASDAQ (the “Conversion Approval”) at the first annual meeting of the Company’s shareholders following the Closing. If the Company does not obtain the Conversion Approval at such annual meeting, then, so long as any Series C Preferred Units remain outstanding, the Company has agreed to continue to use its reasonable best efforts to obtain the Conversion Approval at each annual meeting of shareholders thereafter until the Conversion Approval is obtained.
The Company, Opco, Omni Holders and certain other parties will enter into a tax receivable agreement (the “Tax Receivable Agreement”), which sets forth the agreement among the parties regarding the sharing of certain tax benefits realized by the Company as a result of the Transactions. Pursuant to the Tax Receivable Agreement, the Company will be generally obligated to pay certain Omni Holders 83.5% of (a) the total tax benefit that the Company realizes as a result of increases in tax basis in Opco’s assets resulting from certain actual or deemed distributions and the future exchange of units of Opco for shares of securities of the Company (or cash) pursuant to the Opco LLCA, (b) certain pre-existing tax attributes of certain Omni Holders that are corporate entities for tax purposes, (c) the tax benefits that the Company realizes from certain tax allocations that correspond to items of income or gain required to be recognized by certain Omni Holders, and (d) other tax benefits attributable to payments under the Tax Receivable Agreement.
The consummation of the Transactions is subject to customary closing conditions, including the expiration or termination of any waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and there not having occurred with respect to Omni’s business or the Company’s business a material adverse effect, subject to certain customary exceptions. All approvals required from the Omni Holders have been obtained. Neither the Conversion Approval nor the financing are conditions to Closing. On September 28, 2023, the waiting period expired under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to the Transactions.
Series B Preferred Stock
Pursuant to Articles of Amendment to the Restated Charter of the Company to be filed with the Secretary of State of the State of Tennessee at Closing (the “Charter Amendment”), the Company will establish the terms of a new series of preferred stock of the Company designated as “Series B Preferred Stock” (the “Series B Preferred Stock”), and, at Closing, certain Omni Holders will receive fractional units (the “Series B Preferred Units”) each representing one one-thousandth of a share of the Company Series B Preferred Stock. Each Series B Preferred Unit will, together with a corresponding Opco Class B Unit, be exchangeable at the option of the holder thereof into one share of the Company’s common stock.
Series C Preferred Stock
Pursuant to the Charter Amendment, the Company will also establish the terms of a new series of convertible preferred stock of the Company designated as “Series C Preferred Stock” (the “Series C Preferred Stock”), and, at Closing, certain Omni Holders will receive fractional units (each, a “Series C Preferred Unit”) each representing one one-thousandth of a share of Series C Preferred Stock. The liquidation preference of Series C Preferred Unit will be equal to $110.00 per unit, subject to adjustment for any in-kind payment of the Annual Coupon as described below (the “Liquidation Preference”). In addition, the Series C Preferred Units will accrue on each anniversary of issuance a cumulative annual dividend (without any interim accrual) equal to the product of (a) a rate to be fixed at Closing (which will equal the rate per annum equal to a spread of 3.50% above the yield payable on the most junior tranche of debt issued in connection with the Transactions, rounded to the nearest 0.25%) multiplied by (b) the Liquidation Preference (the “Annual Coupon”). The Annual Coupon will be paid, at the Company’s option, in cash or in-kind by automatically increasing the Liquidation Preference in an equal amount.
Commitment Letter
In connection with entry into the Merger Agreement, the Company also entered into a commitment letter (the “Commitment Letter”), with Morgan Stanley Senior Funding, Inc., Citigroup Global Markets Inc., Goldman Sachs Bank USA and JPMorgan Chase Bank, N.A. (collectively, the “Commitment Parties”), pursuant to which the Commitment Parties committed to provide to Opco, subject to the terms and conditions of the Commitment Letter, (i) up to $1,850 million of indebtedness in the form of a senior secured bridge loan facility and a senior secured first lien term loan “B” facility and (ii) a $400 million senior secured revolving credit facility (collectively, the “Facilities”). The proceeds of the Facilities will be used to (a) finance a portion of the cash consideration for the Transactions and other amounts payable by the Company and its subsidiaries under the Merger Agreement, (b) refinance certain existing indebtedness of the Company and Omni and (c) in the case of the revolving credit facility described above, finance working capital and general corporate purposes of Opco.
Senior Secured Notes
On September 20, 2023, the Company announced that, in connection with the Merger Agreement, GN Bondco, LLC, a wholly owned subsidiary of Omni, (the “Escrow Issuer”) commenced a private offering of $725,000 aggregate principal amount of its 9.5% senior secured notes due 2031 (the “Notes”) in a transaction exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) (the “Notes Offering”). The Notes and the related future guarantees have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. The Notes will bear interest at a rate of 9.5% per annum, payable semiannually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2024. The Notes will mature on October 15, 2031.
On October 2, 2023, the Escrow Issuer closed its Notes Offering and the Notes were issued pursuant to an indenture (the “Indenture”'), dated as of October 2, 2023, between the Escrow Issuer and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent. In addition, the Company and the Escrow Issuer entered into an escrow agreement (the “Escrow Agreement”) pursuant to which the initial purchasers of the Notes deposited the gross proceeds of the sale of the Notes into an escrow account and the Company deposited additional funds required to be deposited therein pursuant to the terms of the Escrow Agreement. On a monthly basis starting in December 2023, the Company is required to deposit or cause to be deposited additional amounts into the escrow account (unless an escrow release has occurred). In connection with the Merger Agreement, the Escrow Issuer will be merged with and into Opco, with Opco surviving the merger as a wholly owned subsidiary of the Company (the “Escrow Merger”). Upon consummation of the Escrow Merger, Opco would assume the obligations of the Escrow Issuer under the Notes and the Indenture and become the “Issuer” thereunder of executing a supplemental indenture to the Indenture.
If the Merger is not consummated on or prior to June 30, 2024 (the “Escrow Outside Date”), or if, prior to such date, (i) the Company notifies the escrow agent that the Merger Agreement has been terminated in accordance with its terms or (ii) the Company issues a press release indicating that the Merger will not be consummated on or prior to the Escrow Outside Date (or at all), then, in each case, the Escrow Issuer will be required to redeem all of the notes at a special mandatory redemption price equal to the initial issue price of the Notes, plus accrued and unpaid interest to, but excluding, the special mandatory redemption date.
New Senior Secured Term Loan Facility
On September 22, 2023, the Company priced and allocated a $1,125,000 term loan “B” facility (the “New Term Loan Facility”) to a group of prospective lenders in connection with the financing of the Merger. Loans under the New Term Loan Facility bear interest at a rate equal to, at the Company’s option, the Secured Overnight Financing Rate (“SOFR”) plus 4.50% or the alternate base rate plus 3.50%, subject to an interest rate floor of 0.75% and 1.75%, respectively, and to be issued at an issue price of 96.0%.
The Company elected to include a ticking fee construct to the New Term Loan Facility such that beginning on October 23, 2023, a fee, calculated as 50% of the interest rate margin or 2.25%, is earned by the prospective lender through November 21, 2023. On November 22, 2023, the fee is increased to 4.50% plus SOFR, until the New Term Loan Facility is closed into escrow or the Merger is not consummated.
Due Diligence and Transaction Costs
For the three and nine months ended September 30, 2023, the Company recorded $22,371 and $27,871, respectively, of due diligence and transactions costs incurred in connection with the acquisition of Omni. The due diligence and transaction costs were recorded in “Other operating expenses” in the Condensed Consolidated Statements of Comprehensive Income.
Intermodal Acquisitions
In May 2022, the Company acquired certain assets and liabilities of Edgmon Trucking, LLC (“Edgmon”) for $40,993 and a potential earn-out of up to $5,000, based on the achievement of certain profit contribution milestones over a nineteen month period, beginning May 31, 2022. The estimated fair value of the earn-out liability on the date of acquisition was immaterial. The fair value was based on the estimated certain profit contribution during the nineteen month period and was calculated using the option pricing method. Edgmon, headquartered in Kent, Washington, operates a terminal in Kent and a yard in Seattle, servicing both the Port of Seattle and the Port of Tacoma. The acquisition of Edgmon marks the Company’s first Intermodal location on the West Coast, a key area of expansion in the Intermodal strategic growth plan. The acquisition was funded using cash flows from operations. The results of Edgmon have been included in the Company’s Condensed Consolidated Financial Statements as of and from the date of acquisition. The associated goodwill has been included in the Company’s Intermodal reportable segment.
Fair Value of Assets Acquired and Liabilities Assumed
Assets acquired and liabilities assumed as of the acquisition date are presented in the following table:
The preliminary purchase price for Land Air has been allocated to assets acquired and liabilities assumed based on the the Company’s best estimates and assumptions using the information available as of the acquisition date through the date of this filing. The provisional measurements of identifiable assets and liabilities, and the resulting goodwill related to the acquisition are subject to adjustments in subsequent periods as the Company finalizes its purchase price allocation, including the third-party valuation. The Company expects to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.
The estimated useful life of acquired intangible assets as of the acquisition date are summarized in the following table:
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