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Daseke (DSKE) Announces 3rd Merger Within Last 2 Months

07/10/2017

By Steven Ralston, CFA

NASDAQ:DSKE

Summary

- Daseke Inc. (NASDAQ:DSKE) continues to execute its strategy of consolidating premier open deck trucking companies within a highly fragmented market.
- Merger with Missouri-based The Steelman Companies follows the May 1st merger announcements with Indiana-based The Schilli Companies and Manitoba-based Big Freight Systems Inc.

- Our indicated share price target has been increased to $16.35, which is based on comparative analysis that utilizes the valuation metric of EV/EBITDA and targeting a second quartile industry multiple.
 
Another Merger Announced

On July 5, 2017, Daseke announced a merger with The Steelman Companies (Steelman Transportation & Group One), a top-tier open deck and specialized transportation company located in Springfield, Missouri and operating throughout the Midwest. During 2016, The Steelman Companies generated revenues of approximately $46 million and Adjusted EBITDA of about $7 million. Steelman Transportation specializes in flatbed and heavy haul freight while Group One focuses on transportation services for trade shows and powersports (automobiles, motorcycles, 4-wheelers and related equipment), and also offers industrial warehousing services (approximately 128,000 square feet).

On May 1st, Daseke (DSKE) announced mergers with two open deck transportation companies: Indiana-based The Schilli Companies and Manitoba-based Big Freight Systems Inc. Combined, Schilli and Big Freight generated approximately $119 million in revenues and $13 million of Adjusted EBITDA during 2016.
 
The average purchase price for The Schilli Companies, Big Freight Systems and The Steelman Companies was 5.4 times 2016 Adjusted EBITDA and resulted in the issuance of 1,088,305 shares of DSKE. Since the combined consideration for the mergers with Schilli and Big Freight Systems was $36.8 million, which consisted of $33.4 million in cash and 342,133 shares of DSKE (valued at $3.44 million), one can assume the merger with Steelman consisted of the issuance of 746,172 of DSKE shares, along with an undisclosed amount of assumed debt and an amount of cash on hand. After the mergers, Daseke owns over 3,500 tractors and 7,300 trailers, along with 1.1 million square feet of industrial logistics, warehousing and distribution operations.
 
Overview of Daseke’s Growth Strategy

Daseke is poised for continued growth through additional mergers, bolstered by organic growth via operating and integration synergies along with positive industry trends (industrial output growth and capacity reduction from the ELD mandate). Since 2008, Don Daseke (the company’s founder and CEO) has been pursuing the goal of building the premier open deck trucking company. Daseke has created a national network of open deck trucking companies, a scalable platform with which to continue pursuing a strategy of consolidating premier open deck trucking companies within a highly fragmented market. The company’s record of growth in revenues and Adjusted EBITDA has been driven by a combination of strategic acquisition driven and organic growth strategies.

Indicated Target
 
Based on comparative analysis that utilizes the valuation metric of EV/EBITDA, a second quartile industry multiple indicates a share price target of $16.35.

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