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opinions Rolf Lockwood

Unique Deal Creates Powerhouse

Posted: October 30, 2014 by Rolf Lockwood

You will have read by now that a partnership deal has been struck by the Mullen Group and Kriska Holdings, and a very interesting one it is. A major western force links up with a smaller, but very significant eastern player, both among the very best trucking operations in the land, both managed about as well as fleets can be managed. With awards and/or profit to prove it. They’re coming together to create a new company — the Kriska Transportation Group — with shared ownership.

Our news story late last week covered it in some detail (go here) but I thought this unique transaction deserved a closer look, because I don’t know of another like it. And, frankly, in my mind it needed perspective. Maybe you thought the same.

I couldn’t resist knowing more so I got on the phone to talk further with the key players. Murray Mullen, who is chairman, president, and CEO of the company that bears his name, was out of town when I called, so I spoke with Senior Vice President Richard Maloney. I did manage to catch Kriska president and CEO Mark Seymour. And it was amazing how similar those candid conversations were in both tone and content. What shone through most of all was the respect the two companies and their leaders have for each other. It was tangible.

The best way to describe the deal is to call it a strategic partnership, but what makes it unique? Isn’t it just another example of the consolidation we’ve seen happening more and more in recent years? No, it’s not. Nobody’s buying anybody out, for one thing. Nobody’s being rescued. Neither party needed to do this on the face of it, both companies being successful as they are, but I’ll come back to this point later on.

“We’re not in the position of fixing broken companies,” Seymour said, “but we are going to be in the position of acquiring strong companies and giving strong companies an alternative to what’s existed in the marketplace before.”

As well, we have a public corporation in Mullen linking up with a closely held private company in Kriska, which doesn’t happen very often in quite this way. It means that Mark Seymour now has shareholders to think about to some extent, albeit at one remove. He’ll run the new company but his decisions will be slightly more complicated than they’ve been in the past when he answered only to himself.

“I don’t want to be answering questions for him, but I will say this: I’ve got a lot of respect for Murray Mullen and we spent a fair bit of time talking about this. I wouldn’t do this with him if I didn’t trust him and he wouldn’t do this if he didn’t trust me.

“At the end of the day I think what he has done is place a lot of confidence in the leadership of Kriska, that we will behave with his investment and his money in a responsible, disciplined way. I think he would say that,” Seymour told me.

To reiterate a little of what you can read in our news piece, here’s what we’ve now got: Mullen has contributed its eastern subsidiary, Mill Creek Motor Freight based in Ayr, ON, to the new company in exchange for 30 percent ownership; Seymour has ‘contributed’ his own company, Kriska Holdings, and will hold the remaining 70 percent. Seymour will manage the new enterprise, with Kriska Holdings and Mill Creek as its subsidiaries. As well, Mullen will acquire the property of Kriska Holdings, including its current Mississauga and Prescott, ON facilities, leasing them back to the new company.

The western outfit has 26 subsidiary companies, Maloney explained, not all of them in trucking. Ten of them are in the trucking/logistics sector, the other 16 in oilfield services.

“Our business model is based on self-managed subsidiaries,” Maloney told me. “We have 3,500 power units but in separate subsidiary companies.

“We don’t do acquisitions for top-line benefit,” he went on. “It has to be strategic.”

Formed in 1980, Mill Creek is predominantly a truckload carrier with a logistics operation as well. Which also describes Kriska. Mill Creek will continue to be run as a stand-alone subsidiary fleet as it’s been since Mullen bought it in 1999. That’s the Mullen way, and now it’s the Kriska way too.

“We can really hit the ground running with two companies that do the same thing — dry van, truckload, cross-border primarily,” Seymour said. “It would be easy for one to ask, why wouldn’t you put them together? Well, because I’m the first to say, I’ve done that before and it didn’t work out so well. Kriska doesn’t need to Kriska’ize Mill Creek.

“Mill Creek is very safe. They’re profitable. They’re the most profitable company we’ve ever looked at, by far. They’re safe, they’re profitable, they’re disciplined, thanks to the Mullen Group, and if you’re not disciplined you don’t exist. And they’re stable. Of the two vice presidents at Mill Creek, one’s been there 22 years and the other’s been there for 15.

“I’m not going to say there’s nothing we can do to help them, because I’m sure there is, but there’s little advantage to putting Kriska people in there to fix anything because there’s nothing broken. We want to preserve and protect cultures within… the operating companies. Although we have many of the same values, cultures are always different, so we’re not going to try to slam companies together for the sake of reducing head count. We’re not going to do it, because… we don’t believe it’s the right thing to do,” Kriska’s chief told me.

On the operational side, both Kriska and Mill Creek run logistics divisions and that’s where the new company will see easy gains.

“Our [logistics] basket has about $7 million a year in it, and Mill Creek’s has about $7 million a year in it too,” Seymour explained. “So the first thing we’re going to do every day before we share our baskets with the larger world is share it with one another. So if a Kriska truck is delivering in Dallas, Texas and Mill Creek’s got a load in Dallas, they’ll be giving it to Kriska first. That happens every day, though we don’t necessarily have the motivation to share it with one another. But we will. That will allow us to be more efficient, it will tighten up our network, it will keep our drivers moving faster. That’s one of the easiest things for us to do that only positively affects the bottom line.”

I wrote a few paragraphs ago that “neither company needed to do this” but that’s not strictly true to hear Maloney and Seymour talk.

The Mullen VP said the western outfit has been watching developments on the eastern trucking scene and saw that fewer companies were entering the business while at the same time consolidation has been further reducing the number of players.

“We watch the macro scene,” he told me. “The time is right for this deal.”

The fact is that Mill Creek, with just 107 power units and 291 trailers, is increasingly vulnerable. As part of the new Kriska Transportation Group, with a combined 457 power units and 1,491 trailers, it gains what we might call gravitas. As does Kriska Holdings. And that matters when dealing with the biggest shippers.

“Big shippers, they’re tired of hearing about the driver shortage but I think where they see the driver shortage negatively impacting their business is if they’re doing business with ABC Cartage and ABC keeps saying I can’t move your freight because I’ve got a driver shortage. What we’re trying to create is a consolidation such that we can go to the market with more capacity,” said Seymour.

“We want to grow Kriska and Mullen needs to grow. Together we’ll be in a better position to do that. He’s a very strong partner to have, with a lot of history in looking at deals, making deals, and valuing deals. He’s a really good partner, and I think he would say he thinks we’re a very strong partner in the east… It’s our team that Mullen has placed a bet on to be a lightning rod for growth and activity in the east.

“So that’s what expected of this. We didn’t do this to still be at $120 million and 500 power units three years from now.”

This is going to be interesting, the coming together of two of the best trucking minds in the country in Mullen and Seymour. And two of the best companies, both very buttoned down but neither one with a stiff and autocratic culture. I won’t be the only one watching closely.

www.millcreek.on.ca

www.kriska.com

www.mullen-group.com

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