Prime purchases bankrupt trucking firms via courts

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At a time when record numbers of trucking firms are failing, Springfield-based Prime Inc. is tapping into a new resource for growth: the U.S. Bankruptcy Court. |ret||ret||tab|

In the last six months, the Springfield firm has purchased assets of two bankrupt trucking companies through the U.S. Bankruptcy courts' bidding system, adding about 900 trucks and its first terminal facilities outside of Springfield.|ret||ret||tab|

Prime purchased the assets of Salt Lake City-based C.H. Dredge & Company last month through the U.S. Bankruptcy Court, Northern District of Illinois, for an undisclosed amount, assuming some of the bankrupt company's liabilities.|ret||ret||tab|

In October, Prime purchased assets of Oklahoma City-based Rocor International Inc. for an undisclosed sum, also assuming some of Rocor's liablities.|ret||ret||tab|

Company officials say the vast number of trucking company bankruptcy filings has opened new doors. |ret||ret||tab|

"There have been many, many more opportunities in the last couple of years coming through the bankruptcy courts than in prior years, largely due to the economy," said Steve Crawford, Prime's general counsel.|ret||ret||tab|

In just the past three years, more than 10,000 trucking companies have folded, compared to about 11,600 failures during the entire 1990s, according to research compiled by A.G. Edwards & Sons Inc. |ret||ret||tab|

Trucking failures peaked in 2001, when nearly 4,000 companies shut down, research shows. Last year the number dropped to about 2,300, still greater than the recession-driven peaks in 1991 and 1992, which hovered around 2,200 failures.|ret||ret||tab|

But according to Donald Broughton, transportation equity analyst with A.G. Edwards, although bankruptcy courts have been loaded with trucking company procedures, the pick-up in merger and acquisition activity has been quite recent.|ret||ret||tab|

"We had a period ... in which we saw plenty of failures, but we didn't see many acquisitions. The reason is simply because as we had companies fail, we had a surplus of used equipment, and so the value of used equipment plummeted," Broughton said.|ret||ret||tab|

Previous economic slowdowns Broughton points to 1991 and 1995 inspired merger and acquisition activity. But that was when trucking equipment held its value, he said. |ret||ret||tab|

"It didn't happen in this slowdown because most carriers had equipment on their books for more than it was worth," he said. |ret||ret||tab|

Broughton views asset purchases such as Prime's as a sign of a rebound in the value of used trucks.|ret||ret||tab|

The C.H. Dredge transaction comprises about 65 trucks, the company's customer base, and a terminal facility in Salt Lake City, which operates as the CHD Regional division of Prime. Rocor's assets included 850 trucks, 1,100 trailers and the staff and driver base to support it. Before the purchases, Prime's fleet consisted of 2,500 trucks, most of which are operated by independent contractors.|ret||ret||tab|

But of greatest significance might be the new terminals gained through the purchases. Accompanying the CHD Regional division in Salt Lake City is Prime's RTC division operating in Oklahoma City and Denver. Prime leases those facilities as part of the Rocor purchase agreement.|ret||ret||tab|

"It significantly strengthens our regional presence in a vital area of the country," said Robert Low, president of Prime.|ret||ret||tab|

Prime's intentions are to maintain a presence in those three new cities, company officials said. |ret||ret||tab|

"With those operations, we're going to recruit there and transfer our culture to those facilities and operate out of them," Crawford said.|ret||ret||tab|

Another large Springfield trucking company has avoided merger and acquisition activity. Jim O'Neal, president and CEO of O&S Trucking, said although many of the larger companies have grown through mergers and acquisitions, he is glad his company has not taken that route. It is too risky, he said.|ret||ret||tab|

While Crawford is optimistic that these purchases will be favorable for the company, he understands there are risks involved, especially in tough economic times.|ret||ret||tab|

"Despite these economic times ... freight is still moving across America. It has to," Crawford said. "We are not immune to the economy and the effect that it has on business, but we are enduring through it.|ret||ret||tab|

"There is certainly risk associated with this type of transaction. But I'm very optimistic that the residuals from this purchase will be favorable."|ret||ret||tab|

Analyst Broughton said that's the way the game is played: "Some of those risks will play out and the business owners will look very smart a couple years from now."|ret||ret||tab|

Others will not pay off, he said, but that's the risk you take when acquiring financially troubled companies. The key, Broughton said, is the bottom dollar.|ret||ret||tab|

"People often say acquisitions are all about what you pay and what you get; I tend to say they are all about what you pay."|ret||ret||tab|

Crawford said the total investment in the deals is unknown because creditor liabilities are not determined yet. "There are still matters pending before the court with the estate that will ultimately help determined what our final investment in that division will be," he said.|ret||ret||tab|

Crawford said he expects to know the amounts in the next six months.|ret||ret||tab|

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