A truck of the Forward Air Corporation.
Courtesy of Business Wire
Company: Forward Air (FWRD)
Business: Forward air is an asset-light provider of transportation services. These transportation services include less-than-truckload (LTL), full-truckload and intermodal transportation services, as well as freight brokerage and supply chain services in North America, Europe and Asia. Its segments include Expedited Freight, Intermodal and Omni Logistics.
Market value: $884.7 million ($31.94 per share)
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Forward Air performance in 2024
Activist: Ancora Advisors
Percentage ownership: approx. 4%
Average costs: n/a
Comment from an activist: Ancora is primarily a family wealth investment advisory firm and fund manager with $9.5 billion in assets under management. The firm has an alternative asset management division that manages about $1.3 billion. It was founded in 2003 and hired by James Chadwick in 2014 to pursue activist efforts in niche areas such as banks, savings associations and closed-end funds. Ancora's website lists “small-cap activists” as part of their products and strategies, and their tactics have evolved in recent years. From 2010 to 2020, the majority of Ancora's activism consisted of 13D filings in micro-cap companies, and in recent years they have taken a larger number of sub-5% stakes in larger companies. The alternative investment team has a track record of leveraging private and, when necessary, public equity in portfolio companies to catalyze governance improvements and long-term value creation.
What happens
On August 20, Ancora sent a letter to Forward Air's board of directors, requesting that a strategic review be initiated by independent legal and financial advisors, noting that improving operations and repairing the balance sheet would be better achieved as a private company.
Behind the scenes
Forward Air is an asset-light transportation company focused on expedited LTL markets; all goods are transported by land. The company offers an alternative time-defined delivery solution at a lower cost than traditional air freight and also offers various other transportation services, including intermodal transportation, brokerage services and last mile delivery. However, the majority of profits are generated from the core Expedited LTL business (80% in 2023).
Ancora has been with Forward Air for nearly four years. The company initially filed a 13D on December 28, 2020, and finally received two seats on the board on March 15, 2021. This campaign focused on capital allocation, cost reduction, margin improvements, and divestment of non-core or underperforming assets. In late 2021, the stock began to perform better after the company cleaned up the business, bringing the price above $120 per share. Ancora exited in February 2022, earning a return on capital of 58.63% versus 5.13% for the Russell 2000 over the same period.
However, in late 2023, the company's stock price began to decline. In October 2023, Ancora announced that it had become one of the largest shareholders again when the stock was trading in the low $70s. This came after the company announced in August 2023 that it would acquire one of its five largest customers, Omni Logistics, at 18 times earnings before interest, taxes, depreciation and amortization in recent years, which was well above the multiple at which the company had been trading. Forward Air's stock plummeted following the announcement. Ancora vehemently opposed the deal, stating that it viewed the transaction as an entrenchment of management and the board to ensure excessive compensation levels, and the company argued that the deal was structured to avoid a shareholder vote. Despite Ancora's objections, the Omni deal was completed on January 25, 2024, and Ancora sold its position in the first quarter of 2024. Since then, the stock has fallen to $11.21 in May and now trades for just under $30.
When an investor publicly promotes a sale of the company without conducting a detailed analysis of alternative paths to value creation, we often view such campaigns negatively as short-term opportunistic engagements that do not paint shareholder activism in a good light. In this case, however, Ancora has already conducted two campaigns, the first of which was long-term focused and very successful, based on careful analysis on business improvement and collaboration. The second was launched after Ancora's two directors resigned from the board. Ancora is now back with Forward Air – now as a top 10 shareholder with a position of about 4% – and after the company has changed drastically with the acquisition of Omni Logistics. This time, the activist message is simple: hire advisors and sell the company. Ancora recognizes the path to value creation as a publicly traded company. However, the company points out that if it remains listed, the company will have to execute impeccably to achieve business-related synergies, cut redundant costs, repair its highly leveraged balance sheet and grow profitably. Ancora sees this as a herculean task, especially for the management team and the board, many of whom were responsible for questionable decisions such as the leveraged acquisition of Omni.
In short, Forward Air is a great company that got a bad deal. It now has a leveraged balance sheet and bloated SG&A expenses. What needs to be done here – selling non-core assets and restructuring operations – is best done privately. Moreover, these are also the things that private equity funds excel at. Coincidentally, private equity firm Clearlake Capital has taken the rare step of filing a Form 13D expressing its desire to speak to the board about strategic alternatives. While this doesn't necessarily mean Clearlake is the clear-cut potential buyer, the firm could well put the company in the running with an offer. Clearlake owns a 13.8% stake and Ancora owns about 4%. Irenic Capital built a nearly 5% stake earlier this year and called for a strategic review that would also examine a potential sale of Forward Air. The key investor to watch here is major shareholder Ridgemont Equity. Ancora has two ways to force a sale of the company – through persuasion or through a proxy fight, and both paths will likely require the support of Ridgemont, which also holds two seats on Forward Air's board. However, Ridgemont acquired its stake as a major shareholder of Omni Logistics and retained its ownership of the surviving company, so there's no reason to believe the company wouldn't re-transfer its equity in a private equity buyout. The only potential obstacle to a private equity buyout is the company's heavy debt load of roughly $1.6 billion, with interest payments already choking the cash flow that private equity investors love so much.
Ken Squire is founder and president of 13D Monitor, an institutional research service on shareholder activism, and founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments.