*Written by Bill Hethcock and approved for reprint by Dallas Business Journal. Photography by Kye Lee.
Meet DFW’s 18-Wheeling and Dealing Powerhouse
The Addison company has rolled nine trucking firms into the fold in the six years it has existed, and the Daseke’s founder expects the acquisitions to continue. But M&A is only half of the company’s growth story.
Don Daseke, president and CEO of the transportation company that bears his name, barely knew a flatbed from a mud flap before he bought his first trucking company, Smokey Point Distributing, in 2009.
Since that time, the former real estate and telecom entrepreneur has gone on a mergers-and-acquisitions spree to create a convoy of companies with separate identities but common ownership under the Daseke Inc. name. And Daseke plans to keep the acquisitions rolling.
The M&A coupled with organic growth have expanded the Addison-based parent company into one of the largest owners of flatbed and specialty trucking capacity in North America, with nine companies nationwide, 3,000 employees and more than 3,000 tractors and 6,000 trailers. The company topped this year’s Dallas Business Journal list of fastest-growing middle market companies.
Daseke has a projected revenue of $750 million this year — 25 times the $30 million revenue the company hauled in 2009. Its trucks will put 250 million miles on their collective odometers this year, enough to go to the sun and back, then return to the sun.
“The passion of the people is what attracted me to the business. People, more than facilities and equipment, will make or break a business,” Don Daseke said in an interview at Lone Star Transportation LLC in Irving. Lone Star, one of several Daseke companies that specialize in cumbersome, high-value cargo, merged into the Daseke trucking network a year ago.
Daseke Inc.’s story starts in 2008, when an investment banker friend of Don’s in Dallas asked him if he’d be interested in acquiring Smokey Point Distributing Inc., a specialized trucking company based in Arlington, Washington, north of Seattle.
“I confess I knew nothing about trucking, but because he was a personal friend, I said I would look at the information on the company,” Daseke said. “I checked it out and went up and met the people, and I really liked the people — especially the president, Dan Wirkkala. So I bought the company.”
Long before he started buying trucking companies, Daseke, a CPA by training and a former member of the Addison Town Council, worked in sales and finance for IBM for eight years. In 1972, he founded Walden Residential Properties, an apartment real estate investment trust that he took public on the New York Stock Exchange in 1994 in a $150 million initial public offering. After the IPO,as Walden’s chairman and CEO, and grew the REIT from 6,000 middle-income apartments to 42,000 units in 2000, when he sold Walden for $1.7 billion.
Former Politician Fell in Love with Trucking
In 1998 Daseke founded Sage Telecom, an Allenbased business offering low-priced residential phone plans primarily in rural areas. He built Sage to 500,000 customers and sold the company in 2012.
A couple of years after Daseke bought Smokey Point, a national investment banker who knew of his acquisition of that company approached him with another trucking company, E.W. Wylie, in Fargo, North Dakota.
Again, Daseke investigated the company. Again, he liked the people. So again, he bought the company.
About that time, Daseke conceived the idea of building a broader trucking network — a national company focused on hauling difficult-to-move cargo. Things like wind-turbine blades, heavy machinery, large oil and gas drilling equipment and aircraft wings.
“We looked around and said, ‘Is there a national company focused on hauling big, heavy, awkward things using flatbed type equipment? And no, there was no national company,” Daseke said. “Was there a public company focused on this niche? No there wasn’t a public company.”
He and other Daseke executives started identifying and approaching companies nationwide, exclusively targeting businesses that weren’t for sale. Daseke declined to reveal financial terms of the acquisitions.
Companies that are for sale are usually on the market for a reason, such as management problems, financial trouble or stockholder issues, said Scott Wheeler, Daseke corporate CFO. Companies that aren’t technically for sale are typically better run and better positioned to succeed, he said.
“When companies are for sale, there’s something to be fixed,” Wheeler said. “This is not that. The companies Daseke is acquiring are extremely well-run and in extremely good financial positions. It’s a flight to quality. It’s an amalgamation of the best.”
Fragmented Trucking Industry Fertile Ground for Daseke
Daseke’s business is divided into two segments. The traditional flatbed segment hauls conventional freight like lumber, gypsum, tubing, steel and auto parts. The specialized segment handles the more complicated cargo such as, recently, a 658,000-pound refinery drum strapped to a 190-wheel Lone Star flatbed that made traditional 18-wheelers look like Tonka toys.
The specialized division is called specialized for a reason, Wheeler points out. The unwieldy loads require specialized trailers, specialized drivers, specialized routing, permitting and skill sets.
“We don’t just pull up to a dock and somebody loads our trailer with a forklift and somebody slams the door and drives,” Wheeler said. “It’s more complex than that.”
Flatbed trucking historically has been an extremely fragmented and largely regionalized industry, dominated by small companies, including some mom-and-pops, Wheeler said. Daseke has created a network of companies that can handle shippers’ needs across the United States and can capitalize on other advantages that size brings, he said.
While mergers and acquisitions make headlines, organic growth builds bottom lines, Wheeler said. That’s another area in which Daseke’s companies shine.
“That original Smokey Point today is literally three times the size it was three years ago,” Wheeler said. “We are able to gain a lot of synergies. It might be cross-selling of customers. It might be purchasing diesel fuel in much greater volume. The savings come in a variety of forms.”
Scale brings several advantages, said Terry Pohlen, University of North Texas professor and director of the Center for Logistics Education and Research in Denton.
“If I can find complementary companies to my existing network, I can do a much better job of keeping the trucks in both companies fully loaded, reducing empty miles,” Pohlen said. ”They also get some advantages on maintenance and acquisition of supplies. I think we’ll also see a common IT platform down the road.”
Because of those benefits, some companies such as Daseke are trying to increase their national footprint,
but overall trucking remains highly fragmented, with more than 400,000 companies, Pohlen said. Nationwide, 94 percent of those companies operate six or fewer tractor-trailer
Trucking has historically been one of the highest bankruptcy businesses in the country because of the heavy competition and the relative ease to enter the field, Pohlen added, Because the bankruptcy risk is high, shippers crave stability, he said.
“Shippers want to know, are you going to be around tomorrow, are you going to have the capacity I need, and are you going to have the drivers, and the safe drivers, that I need?” Pohlen said.
Another bonus scale brings is the ability to carry a $100 million liability insurance policy, which is something smaller companies can’t afford, Wheeler said. The high-dollar policy allows Daseke to attract major industrial shippers such as Boeing, Caterpillar, Georgia Pacific and Commercial Metals, which insist that their expensive freight is adequately insured.
That’s another draw for Daseke, Pohlen said.
“If there’s an accident on the highway and, God forbid, it’s a fatality, they are going to go after whoever
has the deeper pockets,” he said. “If the carrier doesn’t have sufficient insurance, it’s going to roll back on them (the shippers).”
Daseke also gets purchasing efficiencies in fuel and tires, which add up quickly considering its trucks will travel a collective quarter of a billion miles this year, Wheeler said.
The Daseke companies’ combined group purchasing power make them more efficient and competitive, said Chris Hornady, whose Monroeville, Alabama-based Hornady Transportation merged with Daseke in July. Hornady, which has a terminal in Birmingham, operates a fleet of 230 tractors and 325 flatbed trailers. The company operates east of the Rocky Mountains primarily supporting the building products and steel industries.
In addition to Hornady, Smokey Point, E.W. Wylie and Lone Star, the Daseke family includes J. Grady Randolph, Central Oregon Truck Co., Bulldog Hiway Express, The Boyd Cos. and WTI Transport. “By joining with Don Daseke and our new sister companies, I know we will continue on with a people-first tradition,” Hornady said. “We are excited to join forces with Daseke, because our philosophies are a mirror image.”
When deciding whether to acquire a company, Wheeler said he focuses on 10 things. Finger by finger, he ticked them off.
“Quality, quality, quality, quality and quality,” he said. “And culture fit, culture fit, culture fit, culture
fit, culture fit.”
Don Daseke compares the approach he’s taking with building his trucking company to Warren Buffett’s business model.
Daseke CEO: We’re building, not selling
“Warren Buffett buys and invests in the most outstanding, well-run companies throughout the United States as part of Berkshire Hathaway” Daseke said. “Then he provides two things to those companies — capital and mentoring. We do exactly the same thing.”
The big difference is that Daseke’s companies are all in trucking, whereas Buffett’s range from railroads (BNSF) to insurance (Geico) to restaurants (Dairy Queen).
Assembling like businesses allows Daseke to capitalize on synergies and scale and learn from one another, said Wheeler, who before joining Daseke in 2012 was CFO for a variety of high-growth companies, including Irving-based software-services firm OneSource Virtual and miniature Indy car racing company Malibu Entertainment Inc. He’s also a former Addison mayor.
“At Daseke, we focus a great deal on best practices and knowledge sharing,” Wheeler said. “We put teams of people across the company together. The safety people meet. The salespeople meet. The recruiting and retention people meet. The IT people meet. These people get to share what they know, and they enjoy that. ”
One Daseke company, for example, was taking two hours to accomplish a certain hiring process, Wheeler said. In another company, because of better computer automation, the same task was taking 20 minutes.
It was a no-brainer: “Start doing this,” Wheeler said, “and quit doing that.”
Those types of “discoveries,” as simple as they sound, go straight to the bottom line, he said.
While many would refer to the companies that Daseke has brought into its fold as “acquisitions,” Don Daseke prefers to call them “mergers.” The companies come together, and no jobs are eliminated, he points out.
The common practice of buying a company, consolidating operations in a corporate headquarters, and cutting jobs to cut costs would be unwise for a company like Daseke, because of the nature of the trucking business, Wheeler said.
“It’s important that the management teams and the people in these companies sit really close to the customer and really close to the freight,” Wheeler said. “If we centralize a whole bunch of things, we think it’s a mistake. You would win the battle, but you would lose the war.”
Like most trucking companies, a driver shortage is one of the biggest challenges Daseke faces, so it’s important not to lose drivers when new companies come under the Daseke umbrella, Don said.
The shortage of truck drivers has grown to nearly 48,000 nationwide and could expand further due to industry growth and a retiring workforce, according to an analysis by the American Trucking Associations released this month. The report, ATA’s fourth major analysis since 2005, shows that the shortage may balloon to almost 175,000 by 2024, if current trends hold.
The shortage is a matter of quality as well as quantity, ATA Chief Economist Bob Costello said. Carriers consistently report receiving applications for open positions, but that many of the candidates do not meet hiring criteria. Some 88 percent of trucking companies said most applicants are not qualified, Costello said.
The ATA’s study suggests remedies including increasing driver pay, getting drivers more time at home, and improving the image of drivers to attract more men and women to the job, Costello said.
Daseke has programs to recruit and retain the best drivers, Don Daseke said. The company pays drivers competitively and does little things that other companies don’t necessarily do, such as providing food coolers in cabs, offering diet and exercise tips that can be used on the road, encouraging drivers who smoke to quit, and giving drivers business cards to raise their prestige, Daseke said.
On average, younger truck drivers earn $40,000 to $45,000 per year, more experienced drivers earn $50,000 to $60,000 per year, and top drivers can make $125,000 a year hauling highly specialized and valuable loads, Daseke said.
Trucking is heavily regulated, and big companies like Daseke have to play by the rules when it comes to safety and requirements such as how much sleep drivers have to get, Wheeler said.
That means Daseke’s primary competition is not typically another well-managed, large, flatbed company, but a smaller company that, as Wheeler puts it, “will do things in ways we won’t.”
Still, there’s ample business to go around. In terms of revenue, Daseke is the largest flatbed, longhaul trucking company in the country that owns its own equipment, but still it has less than 1 percent of the national market share, Wheeler said.
With all that room for growth, Wheeler and Daseke say they’re positioning the company for the long haul.
“We’re not building it to sell it,” Wheeler said. “We’re building it to build it.”
Daseke said he expects to add one to three trucking companies to the family per year, but said he will continue to be selective.
“We don’t want to set artificial objectives because then you start growing for the sake of growth,” he said. “You take your eye off the ball of the quality of the companies that join you.”
Daseke Inc. may be planning an initial public offering that could raise about $200 million, according to a Bloomberg report in July based on sources who asked not to be named because the discussions are private. Daseke declined to comment on whether it is planning or considering an IPO.
Daseke is working with Morgan Stanley, JPMorgan Chase & Co. and Credit Suisse Group AG on the share sale, which could take place by the end of the year, the Bloomberg item said.
Pohlen said it would make sense for Daseke to be exploring options such as an IPO.
“Their model is rather unique in that they keep the company and basically provide more capital to them,” Pohlen said. “What they’re probably going to be looking at if they do go public is to attract that capital so that they can continue to fuel this business model.”