Struggling with years of financial losses and shipper defections, same-day delivery company Velocity Express is operating under bankruptcy protection while it restructures and hands most of its stock to new owners at investment firm ComVest Group.
Westport, Conn.-based Velocity, one of the largest same-day delivery companies in the U.S., listed about $94 million in assets and $120 million in debt in its Sept. 24 Chapter 11 filing in U.S. Bankruptcy Court in Delaware.
It had $341 million in revenue in fiscal 2008, and an operating loss of $56.1 million. Velocity lost $30.4 million in the first nine months of its current fiscal year, and had an $11.4 million net loss in the quarter ending March 28, the last for which it issued a report.
The agreement with ComVest gives the tottering carrier another chance to reorganize and shoot for profitability, a goal that has eluded Velocity since 2000, when it was born from United Shipping & Technology’s acquisition of Corporate Express Delivery Systems.
The company has reported an annual operating profit only once since 2000 — $1.2 million in 2002 — and never a yearly net profit. In that period, it spent millions of dollars on technology and acquisitions as it sought to gain market leverage in the highly fragmented same-day courier and package delivery business, expanding into time-definite logistics and changing its business model from a traditional employee-driven structure to one built around independent contractors and franchisees.
The company has fought court battles with a major former customer, Office Depot, which Velocity says owes the carrier millions of dollars in unpaid invoices and damages for severing ties in 2006. It faces several class-action lawsuits from drivers claiming to be employees rather than contractors. And in August, NASDAQ delisted Velocity’s stock when the share price fell below minimum market value.
Now, Velocity has a chance for a new start. Under Chapter 11, the company will keep operating as it hands ownership to ComVest in a pre-packaged Section 363 Chapter 11 sale. It’s a debt-to-equity swap that will clear $100 million in debt from Velocity’s books.
“This restructuring will eliminate the significant debt that has burdened the company for the last few years and turn the company’s balance sheet into a major strength,” said Jose Gordo, a partner at West Palm Beach, Fla.-based ComVest Group.
ComVest provides debt and equity solutions to “lower middle-market companies” valued at less than $350 million. ComVest has used Section 363 to acquire majority shares in a variety of companies. The group said it has invested more than $2 billion in more than 200 companies since 1988. The bankruptcy proceeding and restructuring include 12 affiliates operating under Velocity’s corporate umbrella, including Click Messenger Service, Silver Star Express, Olympic Courier Systems and Securities Courier System.
Velocity’s management team, led by Chairman and CEO Vincent A. Wasik and President and Chief Operating Officer Jeff Hendrickson, will remain in place under ComVest.
“With a stronger financial position, we will continue to be able to pursue large business development opportunities, and increase our investment in technology and services,” said Wasik, who joined Velocity in 2001.
Wasik led an attempted management buyout that fell through in August when his group failed to acquire enough of Velocity’s preferred stock. At that point, Wasik’s group signed a restructuring agreement with ComVest, which now owns 95 percent of the company’s senior secured notes.
The elimination of $100 million of Velocity’s approximately $120 million in debt could give the company significant lift. Debt has slowed Velocity Express since United Shipping & Technology formed the company after the acquisition of Corporate Express Delivery Systems in 1999.
Corporate Express sold its CEDS subsidiary — established as U.S. Delivery Systems in 1993 — to United Shipping for $60 million. However, the buyer also assumed $60 million in debt.
Velocity hit speed bumps in the 2000s, including two recessions and the decline of a key source of revenue, the expedited transportation of checks for banks, which plummeted after the federal government allowed banks to process checks electronically. The company diversified, and financial services now account for about 12 percent of its business, while retail and pharmaceutical customers account for about 70 percent.
Velocity also stumbled following its biggest deal of the decade, the $66 million acquisition of competitor CD&L in 2006. The cost of integration proved high, and Velocity had to purge many unprofitable accounts from CD&L’s customer list — a process it was still paying for as recently as the quarter that ended March 28, when it chalked up $4.9 million of a $21.3 million decrease in revenue year-over-year to its “planned exit” from uneconomic customer contracts acquired with CD&L.
One goal will be to broaden its customer base. According to company reports, its top 10 shippers account for nearly 60 percent of its business. Its two top customers generate about 33 percent of its revenue.
Contact William B. Cassidy at firstname.lastname@example.org.