New Owner of Express-1 has Big Plans

Entrepreneur Bradley S. Jacobs made big news in the expediting industry when it was announced that he and his equity company, Jacobs Private Equity LLC, purchased a majority share of Michigan-based Express-1…

Entrepreneur Bradley
S. Jacobs made big news in the expediting industry when it was announced
that he and his equity company, Jacobs Private Equity LLC, purchased a
majority share of Michigan-based Express-1 in early June, investing $150
million. Jacobs Private Equity now owns approximately 71 percent of the
company and Jacobs will serve as chief executive officer and chairman
of the board of directors.

Jacobs intends to build Express-1
into a multi-billion-dollar company. Former CEO Mike Welch will remain
with the company. ExpeditersOnline interviewed Jacobs and Welch straight
on with questions about their plans for Express-1 and the expediters
involved. They responded in kind.

Jacobs’ past ventures include companies in the oil, waste and rental industries. In 1989, he founded United Waste Systems, a Greenwich, Conn.-based company that grew by consolidating small garbage carriers with overlapping routes. United Waste completed about 200 acquisitions over the next eight years, and Jacobs sold the company in 1997 for more than $2 billion.

Jacobs employed a similar strategy with his next venture, United Rentals Inc. Like United Waste, the company grew through aggressive acquisition, consolidating small equipment rental dealers across North America. Eventually, United Rentals acquired its largest competitor and became the largest equipment rental company in North America.

Jacobs believes Express-1 can follow a similar path, and he said he was especially attracted to the company’s culture and its diverse business areas. “First and foremost, I like the people and we get along,” Jacobs said in a telephone interview. “There’s a lot of mutual trust and mutual respect. And we have a shared vision of what we want to do with the company. It’s really important. We want to grow it, really large. I also like the fact that Express-1 has its feet in three different areas, all of which I’m interested in scaling up: freight brokerage, expedited and freight forwarding. I like all three of those areas and (Express-1) has a good name in all of them.”

Express-1’s former CEO, Mike Welch, will remain with the company. Welch said that the company’s growth will include all three of its core business areas, including expediting.

“We plan to expand Express-1 greatly,” Welch said. “… The market is just so much bigger when it comes to freight brokerage and freight forwarding, but we have that same eye on expediting to increase not only our fleet but our presence throughout the U.S., Canada and Mexico. We’re looking at doing that both organically but with the possibilities of some quality acquisitions along the way.”

One of Jacobs’ first orders of business, he said, will be to meet with Express-1’s owner-operators to get their input on how to achieve the growth he seeks.

“One thing I want to emphasize is, I fully recognize the importance of owner-operators to the expedited business,” Jacobs said. “One thing I think I’m pretty good at is asking questions and listening to the people who make the business happen. So I’m going to be out meeting with our owner-operators over the next month. I’m going to keep an open mind and hear how we can improve our relationship with them and any good ideas that they’ve got to make them more happy, because if you keep those folks happy, that’s what makes a business run.”

Jacobs said Express-1 intends to aggressively recruit new owner-operators at the same time as it pursues other expedited companies — a two-pronged growth strategy for the expedited business.

“Express-1 already has a good owner-operator recruitment program,” Jacobs said. “We’re going to add some more resources to that, and try to figure out ways to increase the pace of recruitment of owner-operators.

“And as we do that, we’re going to add more sales and support. That’s what I would call an organic way to grow the expedited business, and we’re going to put a lot of resources into doing that. We’re also going to buy other expediters. We’ve got some discussions going with other expediters that might make sense to put the companies together and get some economies of scale and rise up on the list. Right now, Journal of Commerce says we’re the fifth-largest expediter, so let’s move up a notch or two there over time.”

One reason Jacobs believes his strategy will succeed is because the industries that Express-1 is involved with are composed mostly of very small companies that make attractive targets for acquisition.

“The transportation industry is bigger than industries that I’ve been in before and, more importantly, it’s more fragmented,” he said. “There’s almost a quarter-million trucking companies in the United States, and 96 percent of them have less than 20 trucks. If you look at the major publicly traded trucking companies, only one out of 10 trucks is owned by those publicly traded companies. It’s still a very fragmented industry. And if you look at the brokerage business, there’s over 10,000 licensed freight brokers in the United States and only a few dozen of those companies earned more than $200 million in revenue. So, I would say this is an industry that is very ripe for consolidation.”

One thing that won’t happen, according to Welch, is a transition from a non-asset-based company to a company that actually owns its own trucks and equipment.

“We intend to still be non-asset,” Welch said. “We do not want to become an asset-based company. There are times when we have specialized trailers that we lease from time to time, but we will continue to be a non-asset owner-operator-based expediter. And we certainly want to grow our fleet tremendously.”

Owner-operators need not worry, either, that Express-1’s growth strategy will include cutting rates in order to build market share, Welch said.

“That’s not a legitimate concern,” he said. “We want to grow like we always have, through quality customers, and not do it on the backs of owner-operators. In 2008 and 2009, when times were tough, we thought that (lowering rates to attract more business) was the wrong move so actually our margin shrunk significantly but at the same time when many other carriers’ fleets shrunk because of cutting rates to the owner-operators, ours grew. So the partnership and the culture that we have with the owner-operators, we just want to expand that now. We don’t want to become a lowball, low-rate carrier. That’s not part of what we’re trying to do here.”

Although Jacobs hasn’t been involved with the transportation industry before, he sees some strong similarities in the marketplace between transportation and some of his previous ventures.

“Very much so,” he said. “My first company back in 1979 was a brokerage company. It was brokering oil, but if you went into any of our offices, it would look very similar as if you went into a truck broker’s office. There’s people sitting around desks with two phones and two computer screens. We were matching together major oil companies and independent refiners and moving crude oil and refined products, but it was the same basic business model. I’m very familiar with the brokerage model.”

Jacobs was referring to Amerex Oil Associates Inc., a New Jersey- based company he co-founded in 1979. Jacobs served as Amerex’s CEO until the company was sold in 1983, then moved to England and founded Hamilton Resources Inc., an oil trading company that grew to $1 billion in annual revenue before Jacobs left to return to the United States in 1988.

“Amerex is a business that I started from scratch with some partners, and we grew it up to $4.7 billion in brokerage volume within four years, and sold it,” Jacobs said. “So I’m very familiar with growing a non-asset-based brokerage company.

Then in the oil trading business, the Hamilton Resources company, a lot of it revolves around logistics. We’re chartering vessels and moving oil from all around the world and getting deeply into the details of that operationally and logistically. “Then the last two companies that I ran, United Waste Systems and United Rentals, these had large components of acquisitions in them. The teams I led there completed about 500 acquisitions at United Waste and United Rentals, so I’m very familiar with growth plans that involve purchasing companies and figuring out how to maintain their culture, keeping their cultural integrity intact, respecting their cultural histories and the way that they like to do business and integrating the important backoffice parts: accounts receivable, accounts payable, administration. Here, I’m going to integrate the IT so that all our different offices will be able to have access to the database of relationships we have with the various carriers, so that we’ll turn down less business.”

Welch said owner-operators should have plenty of incentive to remain with Express-1.

“No. 1 is that everything stays the same as far as culture,” he said. “No. 2, we want to put more freight on their trucks and increase the miles that they already have. I think we’re already a leader as far as miles per week that we offer to our owner-operators, but I think with this added investment we’re going to be able to increase that. Obviously we’re going to be able to expand our sales force and find more customers. … They’re probably just going to see more investment in the company than what we did under our current structure.” Jacobs agreed.

“One thing that is very important to me is, we want to make Express-1 the best place for an owner-operator to hook up with,” he said. “And we’re going to be doing a lot of listening to ways that we can do an even better job.

“Express-1 is a very solid company, with strong operations. It’s been performing very well. It performed very well, even during the downturn. They kept the owner-operators whole during the downturn, even at the expense of the profitability of the company. It’s a company that understands that the owner-operators are the most important key to the equation in the expedited group, and I’m going to keep the very good management that’s in place already at Express-1, and we’re just going to grow it.”

Information for this article was contributed by Phil Madsen.