Palladium Equity Partners and ALC

In March 2020, Alex Funk, Deal Team Lead at Palladium Equity Partners, LLC, a private equity firm, was grappling with what to do with the student transportation company he had purchased just weeks earlier.

When he closed the deal with American Logistics Company (ALC) to acquire its subsidiary, ALC Schools, Funk was excited about the acquisition and eager to grow the company, which provided transportation to children with special needs. Operating largely in the Pacific Northwest, ALC maintained that it had no true competitors and was the industry leader in its market niche. ALC benefitted from federal and state laws which mandated that school districts provide transportation for children with special needs. Traditional yellow buses were often not suitable, and school districts found alternative options such as taxis unaffordable, providing a wide opening for ALC.

Palladium’s due diligence had confirmed ALC Schools’ attractive profitability, impressive operational prowess, and rapidly growing, recurring revenue from long-term, evergreen contracts with school districts. Funk planned to transform ALC into an Uber-like system, establishing a nationwide footprint. The fund was so enthusiastic about ALC’s prospects that it had purchased the firm at a multiple 30-40% higher than its preferred range.

But in March of 2020, the bottom fell out. Schools across the United States were shutting down due to the COVID-19 epidemic and nobody knew when they would re-open. ALC’s revenues dropped to zero. Funk had to come up with a plan to deal with the acquisition. He knew he had three options: kill (take the loss; sell off ALC Schools’ assets and liquidate); freeze (continue funding ALC Schools at minimal levels and wait out the pandemic); or build (invest in growth opportunities despite the pandemic).