Strategy

An Acquisition Odyssey

How Odyssey Logistics &spamp; Technology did four acquisitions in one year without help from investment bankers.
Alix StuartAugust 23, 2011

The challenge: how to grow an eight-year-old venture-backed company that is heavily focused on large customers in a single industry?

Odyssey Logistics & Technology CFO Cosmo Alberico has been answering that challenge, in large part by acquiring four companies within the span of about one year. The acquisitions, while individually small, are aimed at helping the firm expand into other vertical markets and toward smaller companies. In the process, Odyssey has nearly doubled its revenues (including organic growth) to crest $100 million, and grown from about 450 employees to nearly 700.

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“It’s been a very successful strategy, and very different from the typical one,” says Alberico, who worked for Pepsi, Dun & Bradstreet, and Sprint before joining the Connecticut-based chemical logistics company in 2005.

While the transactions happened rapidly, Odyssey’s strategy was years in the making. What sets it apart is a very simple idea: approach companies that are not on the block, make an offer on a handshake, and let due diligence bring up the rear, rather than guide the process. 

“We don’t go after companies that are for sale, we go after companies we know of through relationships,” says Alberico. “By doing so, we are able to acquire companies at very low multiples.” The company also helps its returns by doing all the work itself, without investment bankers, he notes.

Odyssey’s core business is transporting hazardous materials for large chemical manufacturers and distributors. With the acquisitions, it has gained new rail-transport capabilities, new expertise in export/import logistics, and a new capacity for small shipments with quick turnarounds that will help it in the chemical industry and beyond.

The acquisition process began about four years ago, when Alberico, Odyssey CEO Bob Shellman, and business-development vice president Vinny Calandra began crafting a list of 55 companies that were potentially of interest. The list came out of basic research, says Alberico, as well as interviews with the business-development team about relationships that were already in place. To make the list, a firm had to fit certain criteria, including enhancing Odyssey’s ability to serve small and midsize customers.

Odyssey executives then assembled a small team to contact the companies, with Calandra often making an initial call to test interest. When those calls went well, he would then set up an in-person visit that included Shellman and Alberico. “You have to be very careful; you don’t want to come across as too aggressive,” says Alberico, who advises approaching potential targets about partnerships, rather than discussing the prospect of an acquisition up front. While owners may see through that façade — many replied they were not for sale — it may set a more congenial tone.

From those 55 calls, Alberico, Shellman, and Calandra ended up meeting with 10 companies, all of them privately held. In all of those cases, the meetings yielded enough additional interest that Odyssey executives asked for the company’s basic current and forecasted financials. The key criteria they looked for in those financials: were the company’s margins equivalent to or better than Odyssey’s consolidated margins? Would the returns be high enough to pay off the purchase price within two or three years? And could Odyssey grow the firm significantly by combining its sales efforts with existing ones?

Based on those financials, Alberico and his colleagues took a bold step and formulated almost-instant offers without doing any further due diligence. Surprisingly, in none of the cases did the due-diligence process later turn up something that was a deal-breaker, or even a deal-shaker. “We found some minor issues, but nothing that moved us away from the deal,” says Alberico, with a purchase-price adjustment necessary in only one case. As part of the deal, Odyssey also requested 30-day exclusivity periods, to prevent potential acquirees from shopping their firms to others.

Of the 10 companies, Odyssey ended up getting accepted offers from 4. In April 2010, it acquired International Forwarders Inc. (IFI), then an independently owned export freight forwarder and customs house broker based in Charleston, South Carolina. In January, the company announced its acquisition of OptiModal Inc., which adds a rail system to Odyssey’s logistics network. February 2011 saw the third acquisition, Chemical Marketing Concepts, which handles logistics for small orders of chemical products. Finally, in the spring Odyssey announced it had also bought Capital Transportation Solutions, which focuses on managing logistics for small and midsize businesses in a variety of industries, in the first quarter of 2011.

(The majority of the six companies that dropped out were unhappy with the valuation they were offered, although Alberico says the firm may still partner with some in the future.)

What was so attractive about Odyssey’s offers? The speed of the process was one, says Alberico, as was the fact that in all cases, it has kept the acquired entities intact, with all of their employees in their current offices, using their original brand. “What we’re buying is the expertise, so we don’t come in and then lay employees off and dictate how the company should be run,” he says. In fact, the offers were structured around keeping the owners on board as strategic business-unit leaders, with three-to-five-year earnouts making up about a third of the purchase price. The chance for the businesses to increase their own market share through access to Odyssey’s large customer base was also appealing, he said.

To finance the deals, Odyssey used cash from its own balance sheet, but supplemented that with an equity raise with its existing investors and a round of senior debt ahead of its three latter (and pricier) purchases.

All in all, Alberico considers the effort a success. “We were hopeful to get a 10% [positive response rate], and we actually doubled that,” he says. Plus, all of the acquired businesses have grown their sales by double digits since coming on board.

For the moment, the pace of deals is likely to slow. But when it comes time for Odyssey to consider its own exit strategy, Alberico believes the acquisitions will help position it well. Thanks to the low multiples he was able to wrangle, “we feel very confident that our multiple should be two times–plus to what we’ve acquired these companies at,” he says.