Forward Air may undergo a strategic review following activist Ancora's involvement in investors' calls.

Company: Forward Air (FWRD)

Transportation services are provided by an asset-light business, which includes LTL, truckload, intermodal drayage, freight brokerage, and supply chain services across North America, Europe, and Asia. The business has three segments: Expedited Freight, Intermodal, and Omni Logistics.

Stock Market Value: $884.7M ($31.94 per share)

Activist: Ancora Advisors

Percentage Ownership: approximately 4%

Average Cost: n/a

Ancora is a family wealth investment advisory firm and fund manager with $9.5 billion in assets under management. The firm's alternative asset management division manages approximately $1.3 billion. Ancora was founded in 2003 and hired James Chadwick in 2014 to pursue activist efforts in niche areas like banks, thrifts, and closed-end funds. The firm's website lists "small cap activist" as part of its products and strategies, and its tactics have evolved in recent years. From 2010 to 2020, the majority of Ancora's activism was 13D filings on micro-cap companies, and in the past few years, they have taken a greater number of sub-5% stakes in larger companies. The alternatives team has a track record of using private and when necessary, public engagement with portfolio companies to catalyze corporate governance improvements and long-term value creation.

What's happening

Ancora wrote to Forward Air's board on Aug. 20, urging the initiation of a strategic review by independent legal and financial advisors. The firm stated that it believed that improving operations and fixing the balance sheet would be better achieved as a private company.

Behind the scenes

Expedited LTL is the core business of Forward Air, a ground-based asset-light transportation company that specializes in expedited less-than truckload markets. The company offers a cost-effective time-definite delivery solution, and also provides intermodal drayage, brokerage, and final mile services. Despite having other transportation services, 80% of Forward Air's profits come from its core Expedited LTL business in 2023.

Ancora, who initially filed a 13D on Dec. 28, 2020, and ultimately settled for two board seats on March 15, 2021, focused their campaign on capital allocation, cost cutting, margin improvements, and shedding non-core or underperforming assets. By late 2021, the stock began performing better after the company cleaned up the business, bringing the price to over $120 per share. Ancora exited in February 2022 and made a 58.63% return on its investment versus 5.13% for the Russell 2000 over the same period.

By late 2023, Forward Air's stock price began to decline. In October 2023, Ancora announced that it had become a top shareholder again when the stock was trading in the low-$70s. This was after the company's announcement in August 2023 that it would acquire one of its top five customers, Omni Logistics, at 18-times trailing earnings before interest, taxes, depreciation and amortization, which was above the multiple at which the company was trading. However, Forward Air's stock price tumbled following the announcement. Ancora opposed the deal, stating that it viewed it as an entrenchment of management and the board to ensure excessive levels of compensation, and the firm argued that the deal was structured to avoid a shareholder vote. Despite Ancora's objections, the Omni deal closed on Jan. 25, 2024, and Ancora sold down its position in the first quarter of 2024. Since then, the stock has fallen as low as $11.21 in May and is now trading in the low $30's.

When an investor publicly agitates for a sale of a company without a detailed analysis of alternative paths to value creation, we often view such campaigns negatively as short-term opportunistic engagements that do not showcase shareholder activism in a positive light. However, in this case, Ancora ran two prior campaigns, the first of which was long-term oriented, highly successful, and based on thoughtful analysis for business improvement and collaboration. The second campaign was launched after Ancora's two directors resigned from the board. Ancora is now back at Forward Air once more, this time as a top 10 shareholder with a position of approximately 4%, after the company has drastically changed due to the Omni Logistics acquisition. The activist's message is simple: Hire advisors and sell the company. Ancora acknowledges the path to value creation as a public company. However, the firm notes that if the company remains public, it will need to flawlessly execute to achieve deal-related synergies, cut excess costs, fix its highly leveraged balance sheet, and grow in a profitable manner. Ancora sees this as a Herculean feat, especially for this management team and board, many

Forward Air is a company that did a bad deal, resulting in an over-leveraged balance sheet and high selling, general and administrative expenses. To address these issues, the company should sell off non-core assets and restructure operations. Private equity funds, such as Clearlake Capital, excel at these tasks. Clearlake recently filed a 13D with language suggesting their desire to engage with the board about strategic alternatives, but this does not necessarily mean they are the clear potential acquirer. Ancora owns about 4% of the company, and Ridgemont Equity, a major stockholder, has two board seats at Forward Air. Ancora has two ways to force a sale of the company, through persuasion or a proxy fight, and both require the support of Ridgemont. However, Ridgemont acquired its stake as a large shareholder of Omni Logistics and may roll over its equity again in a private equity takeout. The large debt load of approximately $1.6 billion with interest payments already suffocating the cash flow could be a potential roadblock to a private equity acquisition.

Ken Squire is both the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.