by Maureen Flanagan
Logex Corporation, the nation's largest contract carrier of bulk industrial gases, is in the driver's seat as gas producers increasingly rely on independent service providers for their transportation needs. Based in Orange, CA, this highly specialized industrial gas transporter has added new terminals and tractors and broadened its customer base to position itself as the market leader. To remain at the forefront of new opportunities, the company's management teamed with American Capital Strategies, Ltd. (Nasdaq:ACAS) to buy Logex from Lewis Hollingsworth, a Dallas, Texas-based investment firm. To close this August 27, 2001 buyout, American Capital provided $24.5 million of subordinated debt and preferred stock financing.
"American Capital's investment will support growth and enable Logex to maintain its dominance in the market. Our commitment to safety and efficiency will continue to come first in order to ensure the reliable delivery of critical products in a safe and timely manner," said Logex President and CEO Gary C. Mooney.
Founded in 1972, Logex was established to provide cryogenic transportation services to a client in Southern California. In 1976, the company expanded and broadened its services, recruiting CEO Mooney to head the business. By 1985, Logex was a leading independent cryogenic carrier in the United States with revenues of $20 million. In 1996, the company's senior management and Lewis Hollingsworth bought the company and instituted an aggressive growth plan which resulted in the acquisition of 12 new terminals to serve the expansion of the company's major customers. Now, the new ownership structure put in place by American Capital will enable Logex to move further down the road of growth and opportunity.
Logex specializes in transporting bulk cryogenic liquids and compressed gases, or industrial gases, such as oxygen, nitrogen, argon and carbon dioxide. These gases are used in a wide variety of industries from chemical and steel manufacturing to service-oriented sectors such as beverages and food processing. Several gases, such as argon, hydrogen, helium and nitrogen, are increasingly used in the electronics industry. New applications for industrial gases, including the use of oxygen for wastewater treatment and pulp and paper bleaching, are also gaining ground.
Transporting industrial gases is a highly specialized business. Gas producers handle more than 70% of their own transportation needs and outsource the rest to independent providers such as Logex. The company's customers include all major producers of industrial gas including Air Liquide, Air Products & Chemicals, Inc.; Tri-Gas, Inc.; BOC Group, plc; Praxair, Inc.; and Linde AG/AGA Gas, Inc. As these producers concentrate on their core operations, the need to outsource transportation requirements to a transportation specialist has increased over the past five years.
To serve its customers, Logex maintains a fleet of 330 vehicles operated from 27 terminals throughout the United States plus two Canadian terminals. Logex does ninety percent of its business on a contract basis, which allows it to provide customers with dedicated drivers and equipment, including a terminal manager and administrative staff that typically works out of a customer's facility. The other 10% of its business is done on a call and demand basis to meet emergencies and other unanticipated situations experienced by customers.
"The company's seasoned and expert management team, its reputation for customer satisfaction and quality service, and its outstanding safety and training programs make Logex a company on the move," said John Thornton, American Capital Principal. "We are pleased to partner with Logex as it moves forward and continues to enhance the distribution system that serves America's industrial gas market."
In addition to the equity investment by Logex' management, ACAS provided a financing package of $16 million in senior subordinated debt, $3.5 million in junior subordinated debt and $5 million of preferred stock. GMAC Business Credit, LLC, provided senior term loans and a revolving credit facility.
Since 1997 ACAS has provided financing for employee and management buyouts, growth, acquisition, liquidity and recapitalizations. Its investment in Logex reflects American Capital's commitment to middle-market companies serving the country's manufacturing base and marks its second investment in the industrial gas industry. In June 2001 ACAS made a $23 million add-on investment in Aeriform Corporation, an American Capital portfolio company since 1999 and one of the country's largest independent distributors of specialty and industrial cylinder gases.
In the United States, the gas industry is highly concentrated with the top five producers controlling about 75% of the market. In the past three years, consolidation has been the norm as smaller companies with competitive deficiencies have been acquired by stronger competitors or have exited the business. To further strengthen their market positions, the major producers have formed technological and geographic supply alliances to improve return on capital.
These industry trends will serve Logex well. The move by producers to consolidate distribution through the use of a highly specialized carrier such as Logex will fuel the company's future growth. In addition, as major gas producers pay more attention to their bottom line, outsourcing of their transportation needs is expected to increase.
Building on its experience, reputation and safety, Logex will be in the driver's seat in fulfilling the critical needs of industrial gas transportation industry for years to come.
