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BMO – The Link – Two Unique Emerging Trends in Transportation & Logistics

Thursday, May 12, 2011BMOlink_May2011


Bulk Intermodal

Another major trend we see is the rise in shipments of bulk industrial freight over multiple modes, traditionally rail and trucking. Commodities such as steel pipe, beams, rods, wood and palletized loads have traditionally been transported by flatbed truck as existing intermodal containers were difficult to load and lack the required strength and securement devices necessary for transport.

Additionally, we have seen the increase in the price of fuel, a shortage of drivers and significant capacity issues result in the demand for an alternative method for moving this bulk industrial freight. Only recently has a solution emerged; Raildecks, a Canadian based intermodal equipment manufacturer is offering a stackable 53 foot collapsible, flat rack container. The product is a container without a roof or side that allows for both the containers and bulk commodities such as steel and pipe to be transported on the intermodal rail network.

The intermodal network travels at speeds up to 70 mph in a double stacked position matching or exceeding the comparable truck service. The intermodal containers eliminate the need for multiple handling of the freight and increases loading and unloading efficiency. The stacking ability allows for 4 containers to be transported in one stacking slot reducing “empty miles”. The freight is secured within the containers using straps or chains consistent with current flatbed securement techniques.

We believe that along with the continued growth of intermodal traffic and significant and continued investment in infrastructure
that solutions allowing for bulk freight to be shipped via intermodal represents a significant growth opportunity for both motor carriers and rail service providers.


Paul Hawkinson, Sector Head – Industrials
Managing Director 312.461.5939
Ed McGuire, Transportation Group
Managing Director 312.293.8362
Corey Ryan, Transportation Group
Vice President 312.461.3906
April M&A Transactions 2
Current Trading Statistics 3
Selected Transaction 4

May 2011
We are dedicating this edition of The Link to discussing a few longer term trends we believe could become sizable growth
opportunities for transportation companies.

Shale Gas and the Trucking Sector
Drilling for oil and gas in shale rock in the United States began in earnest after the discovery of several sizable shale formations,
including the Marcellus Shale (Northeast), Barnett Shale (Texas) and Bakken Shale (Dakotas/Montana) and horizontal drilling
techniques in the 1990s. However, it was not until the economics of horizontal drilling became compelling with higher oil prices in
2006-07 when the opportunity for transporting equipment and supplies related to shale drilling became a reality. In a previous
edition of The Link, we discussed the impact to the rail industry, however, the trucking industry should also be positively
impacted. Consider the following statistics on the trucking demands at one well site in the Marcellus Shale:
 100-1,000 truckloads of fracking fluids and materials
 100-150 truckloads of fracking equipment (pump trucks,
 150-200 truckloads of drilling equipment, materials and

Industry experts estimate that the average oil and gas well requires 320 to 1,365 truckloads of equipment just to prepare the well for production. With oil prices today around $100 per barrel and the emergence of natural gas as a primary fuel for electricity generation, we believe shale drilling is a trend that could continue to grow for the next several decades.

Two Unique Emerging Trends in
Transportation & Logistics
Source: U.S. Geological Survey
CHART 1: Major U.S. Shale Formations
CHART 2: Stackable Trailers for Intermodal Bulk Freight
Image courtesy Raildecks, Inc.
New Albany Utica
Current Shale Plays
Devonian (Ohio)

April 8, 2011 – EIS Capital Corp. announced the acquisition of ENTREC Transportation Services Ltd., a Canadabased provider of transportation services for overweight and oversized cargo in the oil & gas, construction, petrochemical, mining and power generation industries, from Canada-based Flint Energy Services Ltd. Financial terms of the transactions were not disclosed.

April 11, 2011 – RailAmerica, Inc., a Florida-based operator of short-line and regional railroads, announced the acquisition of Three Notch Railroad, Wiregrass Central Railroad and the Conecuh Valley Railroad, all three Alabama-based railroads, from Tennessee-based Gulf & Ohio Railways, Inc. for $12.7 million.

April 18, 2011 – Perella Weinberg Partners LP, a New York-based financial services firm, announced the acquisition of AIG Rail services Inc., a provider of customized full service and net leases for railroads, from New Yorkbased American International Group,
Inc. AIG Rail Services will operate under the name Flagship Rail Services LLC.  Financial terms of the transactions were
not disclosed.

Page 2 of 4 May 2011
Logistics companies continue to be the most active in the search for highly strategic M&A targets


April 4, 2011 – Hub Group, Inc., an Illinois-based provider of freight transportation management services, announced the acquisition of Exel Transportation Services, a Texas-based provider of 3PL services, from Germanybased Deutsche Post AG, for $83.0

April 4, 2011 – Bison Transport Inc., a Canada-based provider of truckload transportation services, announced the acquisition of Britton Transport, a North Dakota-based provider of trucking and logistics services. Financial terms of the transactions were not disclosed.

April 5, 2011 – Transplace, Inc., a Texas-based provider of logistics services, and portfolio company of CI Capital Partners, announced the acquisition of SCO Logistics, a Pennsylvania-based provider of logistics services for the chemical industry, from Red Barn Investments. Financial terms of the transactions were not disclosed.

April 25, 2011 – William B. Meyer, a Connecticut-based provider of transportation and storage services, announced the acquisition of E. Stiewing, Inc., a Connecticut-based provider of moving and relocation services. Financial terms of the transactions were not

Date Enterprise

Announced Target Target Location Acquiror Value ($MM)
04/04/2011 Exel Transportation Services (Deutsche Post AG) United States Hub Group, Inc. $83.0
04/04/2011 Britton Transportation United States Bison Transport Inc. —
04/05/2011 SCO Logistics United States Transplace, Inc. (CI Capital Partners) —
04/08/2011 ENTREC Transportation Services Ltd. (Flint Energy Services) Canada EIS Capital Corp. —
04/11/2011 Three Notch Railroad / Wiregrass Central Railroad / Conecuh Valley Railroad United States RailAmerica, Inc. $12.7
04/18/2011 AIG Rail Services Inc. (American International Group, Inc.) United States Perella Weinberg Partners LP —
04/25/2011 E. Stiewing, Inc. United States William B. Meyer –Page 3 of 4 May 2011


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Comparable Public Company Trading Analysis
04/29/11 Valuation Multiples
Share Market Enterprise EV / Sales EV / EBITDA EV / EBIT Price / Earnings Est. LT
Company Price Equity Value LTM CY11 CY12 LTM CY11 CY12 LTM CY11 CY12 LTM CY11 CY12 Growth Rate
TL Operators
JB Hunt Transport Services Inc. 47.68 $ 5,733 $ 6,426 $ 1.6x 1.5x 1.3x 11.3x 9.7x 8.4x 17.4x 14.2x 12.1x 27.0x 22.7x 18.7x 19.4%
Heartland Express, Inc. 17.25 $ 1,564 $ 1,419 $ 2.8x 2.5x 2.3x 10.2x 8.5x 7.4x 17.6x 13.6x 11.3x 24.0x 22.3x 18.5x 14.6%
Knight Transportation Inc. 18.01 $ 1,509 $ 1,437 $ 1.9x 1.7x 1.5x 9.1x 7.7x 6.4x 16.6x 12.9x 10.1x 26.7x 22.4x 17.7x 15.4%
Werner Enterprises Inc. 26.17 $ 1,905 $ 1,857 $ 1.0x 0.9x 0.9x 6.5x 5.7x 5.0x 13.8x 11.3x 9.4x 22.3x 19.4x 16.4x 11.6%
Marten Transport Ltd. 22.36 $ 492 $ 486 $ 0.9x 0.8x 0.7x 5.6x 4.9x 4.1x 14.2x 11.2x 8.6x 24.6x 19.5x 15.3x NA
Celadon Group Inc. 14.77 $ 327 $ 321 $ 0.6x 0.5x 0.5x 6.4x 5.3x 4.4x 16.3x 9.9x 8.1x 27.3x 19.4x 13.6x NA
USA Truck Inc. 12.45 $ 128 $ 241 $ 0.5x 0.4x 0.4x 4.9x 4.3x 3.3x NM NM 13.3x NM NM 15.0x 10.0%
Sw ift Transportation Co., LLC 14.03 $ 1,938 $ 3,746 $ 1.2x 1.1x 1.0x 7.9x 6.9x 6.0x 14.1x 11.6x 9.6x NM 16.6x 12.5x 17.5%
Covenant Transportation Group, Inc. 9.59 $ 139 $ 355 $ 0.5x 0.5x 0.5x 4.3x 4.2x 3.6x 14.3x 11.6x 8.7x 46.3x 22.8x 11.3x NA
Median 1.0x 0.9x 0.9x 6.5x 5.7x 5.0x 15.3x 11.6x 9.6x 26.7x 20.9x 15.3x 15.0%
Mean 1.2x 1.1x 1.0x 7.4x 6.4x 5.4x 15.5x 12.0x 10.1x 28.3x 20.6x 15.4x 14.8%
LTL Operators
Con-w ay Inc. 38.92 $ 2,157 $ 2,562 $ 0.5x 0.5x 0.5x 8.3x 6.8x 5.4x 20.9x 14.3x 9.9x NM 29.0x 16.8x 21.1%
Old Dominion Freight Line Inc. 37.42 $ 2,150 $ 2,350 $ 1.5x 1.3x 1.1x 9.8x 8.1x 6.8x 14.8x 11.6x 9.7x 24.0x 19.2x 15.7x 23.2%
Arkansas Best Corporation 23.01 $ 585 $ 522 $ 0.3x 0.3x 0.3x NM 8.3x 4.1x NM NM 9.8x NM NM 18.2x 9.5%
YRC Worldw ide Inc. 1.98 $ 95 $ 1,051 $ 0.2x 0.2x 0.2x 7.9x 7.6x 4.0x NM NM 14.6x NM NM NM 15.0%
Median 0.4x 0.4x 0.4x 8.3x 7.8x 4.7x 17.8x 12.9x 9.8x 24.0x 24.1x 16.8x 18.1%
Mean 0.6x 0.6x 0.5x 8.7x 7.7x 5.1x 17.8x 12.9x 11.0x 24.0x 24.1x 16.9x 17.2%
CH Robinson Worldw ide Inc. 80.18 $ 13,275 $ 12,915 $ 1.4x 1.2x 1.1x 19.0x 17.1x 14.6x 19.9x 17.9x 15.3x 33.2x 29.6x 25.2x 13.4%
Expeditors International of Washington Inc. 54.27 $ 11,525 $ 10,293 $ 1.7x 1.5x 1.3x 16.3x 15.0x 13.0x 17.3x 15.9x 13.8x 30.8x 29.3x 25.6x 16.4%
Landstar System Inc. 47.40 $ 2,270 $ 2,333 $ 1.0x 0.9x 0.8x 13.5x 11.8x 10.3x 15.9x 13.7x 11.8x 25.0x 21.5x 18.3x 15.6%
UTi Worldw ide Inc. 22.41 $ 2,289 $ 2,284 $ 0.5x 0.5x 0.4x 12.5x 10.2x 8.6x 18.6x 14.8x 11.6x 32.7x 24.9x 19.5x 21.8%
Hub Group Inc. 40.28 $ 1,510 $ 1,375 $ 0.7x 0.5x 0.4x 16.5x 13.5x 10.7x 18.6x 14.4x 11.3x 33.4x 24.7x 19.5x 16.7%
Forw ard Air Corp. 33.62 $ 988 $ 953 $ 1.9x 1.8x 1.6x 11.9x 10.1x 8.8x 15.6x 12.9x 11.1x 27.1x 22.6x 19.2x 12.9%
Echo Global Logistics, Inc. 13.91 $ 308 $ 265 $ 0.6x 0.5x 0.4x 14.2x 9.1x 6.7x 17.6x 13.2x 9.2x 32.7x 25.3x 17.4x 31.5%
Universal Truckload Services Inc. 15.84 $ 248 $ 231 $ 0.4x 0.3x 0.3x 8.0x 6.8x 5.8x 13.0x 10.0x 7.8x 18.2x 17.1x 14.1x (1.0%)
Roadrunner Transportation Systems, Inc. 14.09 $ 425 $ 469 $ 0.7x 2.9x 2.5x 13.1x 10.1x 8.3x 14.6x 11.0x 8.9x NM 17.2x 14.1x NM
Pacer International Inc. 5.99 $ 210 $ 220 $ 0.1x 0.1x 0.1x 9.9x 8.0x 6.3x 14.2x 11.0x 7.9x NM 20.0x 13.8x 15.0%
Median 0.7x 0.7x 0.6x 13.3x 10.2x 8.7x 16.6x 13.4x 11.2x 31.8x 23.6x 18.8x 15.6%
Mean 0.9x 1.0x 0.9x 13.5x 11.2x 9.3x 16.5x 13.5x 10.9x 29.1x 23.2x 18.7x 15.8%
Union Pacific Corporation 103.47 $ 50,754 $ 58,702 $ 3.4x 3.1x 2.8x 8.9x 8.2x 7.2x 11.5x 10.5x 9.1x 17.5x 16.0x 13.5x 15.7%
Canadian National Railw ay Company 73.39 C$ 33,414 C$ 38,746 C$ 4.6x 4.3x 4.0x 9.9x 9.2x 8.5x 12.6x 11.7x 10.7x 14.8x 15.3x 13.5x 13.3%
Norfolk Southern Corp. 74.68 $ 26,378 $ 32,640 $ 3.3x 3.0x 2.8x 9.2x 8.3x 7.4x 12.0x 10.5x 9.3x 16.9x 15.5x 13.4x 12.8%
CSX Corp. 78.69 $ 28,926 $ 36,490 $ 3.3x 3.1x 2.9x 8.7x 8.0x 7.3x 11.4x 10.2x 9.1x 17.5x 15.3x 13.2x 15.5%
Canadian Pacific Railw ay Limited 62.75 C$ 10,629 C$ 14,539 C$ 2.9x 2.7x 2.5x 10.0x 8.9x 7.5x 14.3x 12.8x 10.4x 18.2x 16.4x 12.6x 18.6%
Kansas City Southern 58.11 $ 5,968 $ 7,784 $ 4.2x 3.7x 3.4x 11.3x 10.0x 8.7x 15.4x 13.2x 11.3x 28.6x 21.1x 17.3x 30.3%
Genesee & Wyoming Inc. 61.98 $ 2,602 $ 3,161 $ 4.7x 3.9x 3.6x 16.8x 12.2x 10.9x 23.7x 16.2x 14.4x 29.8x 22.8x 19.4x 19.4%
RailAmerica, Inc. 17.02 $ 888 $ 1,332 $ 2.7x 2.5x 2.3x 7.4x 7.8x 7.2x 9.9x 11.3x 9.8x NM 23.0x 17.9x 17.0%
Median 3.3x 3.1x 2.9x 9.5x 8.6x 7.5x 12.3x 11.5x 10.1x 17.5x 16.2x 13.5x 16.3%
Mean 3.6x 3.3x 3.0x 10.3x 9.1x 8.1x 13.8x 12.1x 10.5x 20.5x 18.2x 15.1x 17.8%
Canadian Transportation Companies
Mullen Group Ltd. 21.22 C$ 1,685 C$ 2,066 C$ 1.8x 1.7x 1.5x 9.4x 8.2x 7.5x 14.5x 11.9x 10.7x 16.3x 18.1x 15.4x 15.0%
TransForce Inc. 14.09 C$ 1,343 C$ 2,010 C$ 1.0x 0.8x 0.7x 7.6x 6.2x 5.4x 14.5x 11.1x 8.8x 12.8x 14.4x 10.8x NA
Contrans Group Inc. 9.00 C$ 322 C$ 335 C$ 0.8x 0.8x 0.8x 7.2x 6.4x 6.0x 11.4x 9.6x 8.9x 18.5x 15.1x 13.1x 20.4%
Vitran Corp Inc. 15.59 $ 255 $ 333 $ 0.5x 0.4x 0.4x 12.6x 8.2x 6.5x 38.6x 16.3x 10.8x NM 19.5x 12.1x 15.0%
Trimac Transportation Services Limited Partnership 4.95 C$ 126 C$ 203 C$ 0.7x 0.6x 0.6x 5.9x 5.5x 5.1x 11.2x 10.4x 9.1x 6.9x 11.8x 11.0x NA
Student Transportation, Inc. 6.81 $ 398 $ 614 $ 2.1x 1.9x 1.7x 12.8x 10.3x 8.7x 47.6x NM NM NM 54.5x 35.8x NA
Cargojet Inc. 8.53 C$ 68 C$ 105 C$ 0.7x 0.6x 0.6x 4.8x 4.6x 4.2x 6.7x 6.2x 5.6x 11.8x 7.0x 6.1x NA
Median 0.8x 0.8x 0.7x 7.6x 6.4x 6.0x 14.5x 10.8x 9.0x 12.8x 15.1x 12.1x 15.0%
Mean 1.1x 1.0x 0.9x 8.6x 7.0x 6.2x 20.6x 10.9x 9.0x 13.2x 20.1x 14.9x 16.8%
United Parcel Service, Inc. 74.97 $ 73,936 $ 80,654 $ 1.6x 1.5x 1.4x 10.2x 9.2x 8.3x 13.2x 11.6x 10.3x 19.3x 17.4x 15.0x 11.3%
FedEx Corporation 95.67 $ 30,327 $ 30,653 $ 0.8x 0.8x 0.7x 7.2x 6.1x 5.2x 13.3x 10.5x 8.5x 23.1x 17.1x 13.9x 14.1%
Median 1.2x 1.1x 1.1x 8.7x 7.7x 6.8x 13.3x 11.1x 9.4x 21.2x 17.2x 14.5x 12.7%
Mean 1.2x 1.1x 1.1x 8.7x 7.7x 6.8x 13.3x 11.1x 9.4x 21.2x 17.2x 14.5x 12.7%Page 4 of 4 May 2011
Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Two-Year Index Performance
Two-Year EV / EBITDA
Source: FactSet Sources: Company Filings, Capital IQ
Index: —— TL Operators —— Logistics —— Canadian Transportation —— LTL Operators —— Railroads —— UPS and FedEx —— S&P 500
Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Company Description
 SkyLink Aviation, Inc (“SkyLink”) is a leading global provider of air cargo and transportation services,
primarily fixed-wing and rotary-wing air transportation and related activities
 SkyLink is majority owned by Apollo Management
Transaction Description
 On March 8, 2011 SkyLink closed on a five year senior secured second lien notes offering (with three
year non-call provision) for C$110 million, priced at par to yield 12.25%
 As part of the transaction, BMO Capital Markets acted as Joint Bookrunner
Joint Bookrunner
Senior Secured Second Lien Notes
March 2011
$110 million
Portfolio Company of