Apollo Global Management buys Direct ChassisLink, Blume Global for reported $2.5B

Leon Black’s leveraged-buyout behemoth, Apollo Global Management (NYSE: APO), now on its ninth private equity fund, keeps chugging along. This morning, Direct ChassisLink Inc. (DCLI) and its subsidiary Blume Global, announced that they were to be acquired by Apollo. Reuters reported that the deal was for approximately $2.5 billion, including debt.

Direct ChassisLink is a leading North American provider of intermodal chassis, operating a network of approximately 235,000 chassis in hundreds of locations. DCLI says that nearly one in three containerized shipments in the United States uses one of its chassis. Blume Global has built an extensive digital supply chain platform providing visibility into the intermodal supply chain and automated payments processing; its customers, including shippers, intermodal marketing companies, freight forwarders and asset-based carriers use the platform to track shipments and optimize their supply chains end-to-end.

EQT Infrastructure was the seller in the deal and will retain a 20 percent stake in DLCI and Blume Global. EQT bought DCLI in 2016 from Littlejohn & Co.; Littlejohn bought DLCI in 2012 in a carve-out from Maersk, which started DCLI as a division in 1988. DCLI acquired TRAC Intermodal’s chassis fleet, which numbered about 72,000 chassis, in 2017. Last October, Bloomberg reported that EQT was exploring the sale as a way to improve its balance sheet before a potential initial public offering (IPO), and indeed Apollo Global Management says that its private equity business specializes in identifying undervalued assets.

“We are excited to have the support of a world-class financial sponsor like Apollo as we look to grow our asset provisioning business, expand into new adjacencies and capitalize on the tremendous market opportunity for Blume,” said Bill Shea, CEO of DCLI, in a statement. “EQT’s vision and backing have allowed us to grow rapidly over the past few years. We are thankful for EQT’s ongoing support and we welcome Apollo to the DCLI family.”

Growth in Apollo’s total assets under management has grown more than five-fold in the past 10 years, from $44 billion in the fourth quarter of 2008 to $280 billion in the fourth quarter of 2018. According to Apollo’s website, its private equity division had approximately $69 billion in assets under management as of December 31, 2018.

According to Pitchbook data, Apollo has exited a number of its larger portfolio companies through IPOs, which could be an option for a company like DCLI once it grows even larger.

In January 2018, Apollo took ADT Security Services (NYSE: ADT) public at a $10.48 billion valuation, and brought Athene Holding (NYSE: ATH) to public markets at an $8 billion valuation in 2016.

The shortage of intermodal chassis equipment in North America and its impact on port congestion has been widely covered in transportation media and should be considered a positive backdrop for DCLI’s core business, but note that intermodal volumes in the United States are heavily exposed to international trade.

“Volume growth will be necessary for price increases, though, and container traffic will be highly sensitive to U.S.-China trade negotiations, since international intermodal is just over 50 percent of intermodal volume in the U.S. (and even greater, if one adds the strip-and-stuff freight moving on domestic 53’s),” wrote Stifel equities analyst David Ross in a March 7 intermodal industry update.