Inside the deal: Why STG Logistics, backed by Wind Point and Oaktree, bought XPO’s intermodal biz

Wind Point Partners and Oaktree Capital Management teamed up last week to buy the intermodal division of XPO Logistics for $710 million and combine it with Wind Point’s portfolio company STG to form STG Logistics, a new entity co-owned and recapitalized by the two PE firms. PE Hub spoke with STG Logistics chief executive Paul Svindland about the deal and the dealmaking opportunities in the logistics sector.

The deal comes in the face of a snarled global supply chain that includes congested ports, expensive and delayed shipping processes and labor shortages. Before the deal, STG outsourced to third parties intermodal services, which move freight by more than one mode of transportation. “By acquiring XPO intermodal, we are now vertically integrated,” explained Svindland. “We have the capacity to control the move from the port to our location, and then we can control the move from our location to the railroad. That’s why we did it, because it gives us total control over what is core to our business.”

Svindland, an experienced executive in the logistics business, had his eye on XPO’s intermodal operations for some time. “They were always on our radar screen from an M&A perspective,” he said.

Svindland’s prior positions include chairman and CEO of EZE Trucking and chief operating officer of Pacer International, which was acquired by XPO. Since he was familiar with XPO’s operations, it was easy for him to move quickly to start the acquisition process.

“When we got the book, I went to my owners at Wind Point Partners and said, ‘Hey, we need to take a strong look at this opportunity,’ and they fully agreed.” Because of Oaktree’s interests in transportation, it was easy for the two firms to mobilize resources for the deal to sail through.

The logistics sector is a bullish market, as demand for all services is still high, said Svindland. Companies that outsource merchandise from overseas have been forced to find alternative means of shipping their goods, especially during last year’s holiday season, as concerns grew that some seasonal products could fail to make it to the shelves because of the slow-moving shipping process. The US is facing an acute shortage of warehouse space and workers especially, around ports. The country is also facing a critical shortage of truck drivers to haul the goods to their destinations.

“It’s going to be a while before things calm down,” Svindland said. “There are still a lot of disruptions in the supply chain. The demand to move goods is greater than the supply of capacity out there.”

The XPO deal is the 11th acquisition STG has made since Wind Point Partners bought it in 2016. With each acquisition, the company has added a new set of services to its growing suite that includes warehousing, container freight management, inventory management, distribution, e-commerce fulfillment and multi-modal transportation (also known as transloading).

With demand for logistics services projected to remain elevated, STG is setting itself up to play a pivotal role in the supply chain sector. “We believe our growth is really more in transloading and processing the freight and moving it to the final destination point,” Svindland said.