"The acquisition of Velocity further enhances TransForce's density in the same-day North American package and courier market and reflects our disciplined and selective approach in building our network," stated TransForce CEO Alain Bedard.
Velocity, which has about 2,600 staff and independent contractors, is expected to add $160 million of additional revenues for TransForce once the transaction closes by the end of the month.
The increase represents about five per cent of TransForce's total revenues and about 14 per cent of its package and courier business.
Analyst Benoit Poirier of Desjardins Capital Markets said the acquisition, which he estimated cost about $35 million, provides "strong margin upside potential" as a result of significant cost savings efforts.
He estimated the addition will grow TransForce's (TSX:TFI) earnings by eight cents per share over the medium term once it boosts Velocity's margins to Dynamex's standard, acquired two years ago for US$248 million.
A full integration of the two companies is expected to be phased in over 12 to 18 months.
"The bolt-on acquisition should allow for notable cost savings while increasing TransForce’s exposure in pharmaceuticals in Florida, the Carolinas and Georgia, which in our view are key markets," Poirier wrote in a report.
Analyst Maxim Sytchev of Alta Corp Capital said the Velocity transaction "fits the bill" for TransForce which he described as a "turn-around specialist" that has completed 140 acquisitions under Bedard's direction.
He expects that TransForce will over time boosts the package and courier division's margins to 15 to 16 per cent from the current rate of nine to 10 per cent.
Velocity Express was acquired out of bankruptcy in 2009 as part of a buyout by management and private equity firm Comvest Partners.
It has a dedicated hub in New York and has operated since 1997 in Edmonton, Calgary, Fort McMurray, Cold Lake, Fort St. John and Fort Nelson.
Sytchev pointed to several other opportunities for TransForce to expand its reach, including the Flint Energy Services rig moving assets that engineering and construction company URS Corp. is selling.
"TransForce is the most logical buyer of that piece of URS's portfolio," he wrote.
"We continue to view TransForce as one of the very few entities in the industrial space capable of increasing its margins in a lacklustre top line growth environment."
On the Toronto Stock Exchange, TransForce's shares gained more than five per cent, rising $1.07 to $22.19 in Thursday afternoon trading.Suggest a correction