BCI Invests in US Timberland, Sells Pilot Freight Services

British Columbia Investment Management Corporation (BCI) and its partner BTG Pactual Timberland Investment Group (TIG) have created Caddo Sustainable Timberlands, LP (CST), a platform company with 772,000 acres in East Texas and West Louisiana:

BTG Pactual Timberland Investment Group (TIG) and British Columbia Investment Management Corporation (BCI) have created Caddo Sustainable Timberlands, LP (CST), a platform company focused on building exposure to southeastern US timberlands. CST’s investment mandate is to generate superior risk-adjusted returns for investors while ensuring ecological integrity and sustainability.  John Lock has been appointed as President and Patrick Chambless as Chief Financial Officer (CFO). Prior to CST, Lock was a region manager for Arkansas and Texas for an institutional timberland management company and Chambless was a financial reporting manager for a Texas institutional timberland management company.

CST is comprised of approximately 772,000 acres of Sustainable Forestry Initiative (SFI) certified timberlands in the markets of East Texas and West Louisiana. CST’s platform includes key customers Georgia Pacific, Louisiana Pacific, International Paper, West Fraser, and Roy O. Martin.

John Lock, President of CST, said: “Having previously spent 22 years of my career managing the assets that comprise the Caddo Sustainable Timberlands, I am very familiar with the significant economic, conservation and environmental contributions these properties have made to wood consumers, East Texas communities and the forest industry, as well as the need to continue that legacy.  Our team at CST is committed to delivering exceptional stewardship, sustainability, and value through the implementation of science-based forest management practices that promote healthy, vigorous forests while protecting water quality and critical habitats.  We are also excited to partner with the Texas Forestry Association, conservation groups, local communities, and regional stakeholders to continue the rich history of timberland and natural resources management that has been the fabric of these properties and the East Texas culture for well over 100 years.”

Patrick Chambless, CFO of CST, said: “I’m grateful for the opportunity to be part of Caddo Sustainable Timberlands and work alongside John and the teams at TIG and BCI. We are striving to build a best-in-class organization that generates immediate yield on investment for our shareholders, while sustainably managing our portfolio and implementing the highest standards of environmental, social and corporate governance.”

Gerrity Lansing, Head of TIG and CST Board Director, added: “We’re thrilled to once again be partnering with BCI, one of the largest institutional investors in Canada, who shares our long-term commitment to the deep and diverse market of East Texas, as well as our emphasis on environmental and social sustainability. In John and Patrick, we’ve hired an amazing team to lead CST, who have decades of experience with these specific assets and the East Texas communities where they are located.”

Sameer Jinnah, Managing Director at BCI, added: “BCI is an active investor in the timberlands sector and CST is an example of our commitment to a market that can generate attractive risk-adjusted returns for our clients over the long term. We are excited to be working with trusted partners to continue to increase our exposure to high-quality, sustainably managed forests in core markets.”

ADDITIONAL INFORMATION

ABOUT BTG PACTUAL TIMBERLAND INVESTMENT GROUP

BTG Pactual (BPAC11) is the largest investment bank in Latin America, operating in the Investment Banking, Corporate Lending, Sales & Trading, Wealth Management and Asset Management markets. BTG Pactual Asset Management has an international presence with over US$ 100 billion in assets under management and administration. BTG Pactual Timberland Investment Group (TIG), a division of BTG Pactual Asset Management, is one of the world’s oldest and largest timberland investment managers with nearly US$ 4.5 billion in assets and commitments and 3.0 million acres under management globally as of Q3 2021. TIG is focused on achieving compelling investment returns while also applying high standards of environmental and social governance, and has a 40+ year track record with over 100 professional staff members in 15 offices around the globe, bringing local, regional, and global experience to bear on the management of client investments. For more information, please visit www.timberlandinvestmentgroup.com.

ABOUT BCI

With C$ 199.6 billion of assets under management as of March 31, 2021, British Columbia Investment Management Corporation (BCI) is one of Canada’s largest institutional investors. Based in Victoria, British Columbia, BCI is a long-term investor that invests across a range of asset classes: fixed income; public equities; private equity; infrastructure; renewable resources; real estate; and commercial mortgages. BCI’s clients include public sector pension plans, insurance, and special purpose funds. BCI’s infrastructure & renewable resources program, valued at over C$ 20.0 billion, invests in tangible long-life assets that include a portfolio of direct investments in companies across a variety of sectors spanning regulated utilities, energy, telecommunications, and transportation, as well as investments in timberlands and agri-businesses. These companies operate in stable and mature regulatory environments, provide opportunities for future capital investments, and have the potential to generate steady returns and cash yields for our clients. The program is diversified across North America, Asia, Australia, Europe, and South America.

ABOUT CST

Through its subsidiaries, Crown Pine Timber 1, L.P., and Crown Pine Realty 1, Inc., CST owns interests in 772,000 acres of timberlands located in Texas. For business inquiries, please contact info@caddolp.com.

Last May, I discussed how a consortium led by BTG Pactual’s Timberland Investment Group and included BCI bought Arauco's timberland assets in Chile for US$385.5 million.

At the end of January, I covered a deal where OTPP announced an investment vehicle it owns is unassuming ownership of 870,000 acres of sustainable US  timberland.

I referred to this Meketa white paper to explain why institutional investors are increasingly looking to timberland as part of their asset allocation.

What is driving this interest in timberland in general, and US timberland specifically? 

A few things:

  • Two of the most sought after sectors are agriculture and timber. This is partly due to low debt levels, making these sectors safer in a downturn, and rising prices for commodities.
  • Moreover, timberland is seen as an inflation hedge and its performance is not correlated to stocks and bonds and offers superior risk-adjusted returns over the long run.
  • Supply of housing in the US and Canada remains low. In order to increase supply, you need more lumber from timberland to build these new homes.
  • Investing in US timberland is a great way to gain exposure to this market and hedge Canadian dollar exposure (basically, you're long US dollars over the long run)
  • Timberland, when harvested properly, ensuring ecological and sustainable integrity, figures prominently as part of the larger pensions' responsible investing program and allows them to realize their net zero goal sooner. 

For all these reasons, investors are looking at timberland a lot more closely. 

Also notice how this deal was structured, not through a fund investment but through a jointly held platform (with a top partner) called Caddo Sustainable Timberlands, LP (CST), run by two industry veterans, John Lock and Patrick Chambless.

This is a direct investing platform similar to platforms that invest in toll roads, ports, airports, and other areas of interest large Canadian pensions have.

This cuts the fees you would need to pay out to an external fund and allows you to gain intimate knowledge of developments in your timberland holdings.

In related news, BCI and ATL Partners recently announced the sale of Pilot Freight Services for $1.7 billion:

ATL Partners (“ATL”) and British Columbia Investment Management Corporation (“BCI”) announced today that they have entered into a definitive agreement to sell Pilot Freight Services (“Pilot”), a leading global provider of end-to-end and last mile solutions specializing in big and bulky B2C and B2B freight, to A.P. Moller – Maersk (“Maersk”) for approximately $1.7 billion in cash consideration.

ATL and BCI acquired Pilot in 2016 after identifying a structural shortage in capacity required to meet the needs of shippers and consumers, which was created by the rapid secular growth in the big and bulky segment of e-commerce home delivery and installation.  ATL and BCI partnered with management to build Pilot from a family-owned business into the second-largest provider of B2C home delivery in the United States by investing in technology, sales, and operations and acquiring additional capabilities to meet shippers’ needs.  Pilot has grown from approximately $28 million of adjusted EBITDA and 800 employees in 2016 to an estimated $127 million of adjusted EBITDA and over 2,600 employees in 2021.  Under the ownership of ATL and BCI, Pilot invested over $70 million in technology and data science to enhance and automate decision making and improve productivity.  Pilot further accelerated its organic growth through investments in sales personnel and a strategic focus on growing its e-commerce business segments.

To complement strong organic growth, Pilot successfully completed the acquisitions of seventeen franchisees, enhancing operational control and service levels, and completed the acquisitions of three third-party businesses to add capabilities and differentiate Pilot’s service offering.  To expand its e-commerce delivery offering, Pilot built out a best-in-class last mile home delivery solution through the acquisitions of Manna Freight Systems in 2018 and DSI Logistics in 2021.  Pilot significantly expanded its middle mile capabilities through the acquisition of American Linehaul Corporation in 2021, further differentiating Pilot’s market leading position with an integrated expedited ground network, enabling superior service levels and consistent access to capacity.

“We are appreciative and proud of the partnership we’ve had with the Pilot team in successfully executing on the vision of creating a differentiated, market leader to meet the growing e-commerce demand for big and bulky goods,” said Kirby Fine, Partner at ATL Partners. “ATL’s investment process centers around developing an investment theme over multiple years and partnering with a strong founder or management team to execute on that vision.  It has been extremely rewarding to work closely with the talented team at Pilot and our partners at BCI, and we look forward to their continued success with Maersk.”

“The Pilot team has executed on a range of business improvements and growth initiatives over the past several years, substantially increasing the value of Pilot, and generating significant proceeds for our pension plan and insurance clients,” said Jason Cawley, Senior Managing Director, Private Equity at BCI. “Pilot represented the first co-sponsor investment for BCI’s Private Equity strategy. We have enjoyed a fulfilling partnership with ATL and the distinguished management team at Pilot during this investment. We wish Pilot ongoing success in the future.”

Zach Pollock, CEO of Pilot said, “It has been a privilege to partner with ATL and BCI.  They had incredible foresight on where to focus our efforts and investments, and without their guidance, Pilot would not be the company it is today.  I am extremely proud of the amazing accomplishments of the entire Pilot organization.  We are excited to be joining Maersk and for the significant opportunities this new chapter brings.”

The transaction is subject to regulatory review and approval which is expected to be obtained by Q2 2022. Pilot and Maersk will operate as independent businesses and run their operations as usual until that time.

Harris Williams and Morgan Stanley & Co. LLC served as financial advisors and Gibson, Dunn & Crutcher LLP served as legal counsel to Pilot.

About ATL Partners

Founded in 2014, ATL Partners is a premier sector-focused private equity firm that invests in aerospace, transportation and logistics companies.  ATL brings deep sector expertise to its investment approach with ten investment professionals and seven Executive Board members who have decades of combined operating experience in each of ATL’s core sectors.  For more information about ATL Partners, visit www.atlpartners.com.

About BCI

With C$199.6 billion of assets under management as of March 31, 2021, British Columbia Investment Management Corporation (BCI) is one of Canada’s largest institutional investors. Based in Victoria, British Columbia, BCI is a long-term investor that invests across a range of asset classes: fixed income; public equities; private equity; infrastructure; renewable resources; real estate; and commercial mortgages. BCI’s clients include public sector pension plans, insurance, and special purpose funds. BCI’s private equity program, with C$20.7 billion of assets under management, has a well-diversified portfolio comprised of direct and fund investments. The team brings industry expertise across financial and business services, healthcare, industrials, consumer, and TMT sectors.

About Pilot Freight Services

Pilot Freight Services is an award-winning full-service transportation and logistics provider with 87 locations throughout North America. Pilot also has several locations in Western Europe and a presence in the Asia-Pacific marketplace. The company’s freight forwarding services encompass every mode of transportation, including air, ground and ocean, serving all corners of the globe. Pilot’s full mile and final mile home delivery solutions for heavy and hard to handle goods include value-added service offerings such as white glove, assembly and installation.  Pilot’s logistics programs offer a complete line of expedited and time-definite services, international shipping solutions, product warehousing and inventory management. Learn more about Pilot Freight Services at www.PilotDelivers.com.

The fact that BCI and ATL sold Pilot to Maersk for $1.7 billion tells me that this is a very well run company that continues to grow nicely. 

ATL and BCI acquired family-owned Pilot in 2016 and the company is now the second-largest provider of B2C home delivery in the United States.

They notched a big multiple on this sale and made great returns after realizing on their value creation plan over the last six years.

The deal is also good for Pilot and Maersk:

Pilot Freight Services CEO Zach Pollock lauded the partnership with ATL and BCI, adding "Pilot would not be the company it is today. We are excited to be joining Maersk and for the significant opportunities this new chapter brings.”

Adding the capabilities of Pilot Freight Services, A.P. Moller-Maersk CEO of Ocean and Logistics Vincent Clerc said, is especially important because "it will allow us to create more exciting solutions for our customers and support them through the acceleration of the migration towards e-commerce."

With the intended acquisition of Pilot, Maersk will extend its integrated logistics offering deeper into the supply chain of its customers. It will complement the earlier acquisitions already made to provide integrated logistics solutions in North America, especially with Performance Team (PT) (B2B warehousing and distribution) and Visible SCM (e-commerce warehousing and parcel distribution). Pilot will be adding specific new services within the fast growing big and bulky e-commerce segment, thus increasing cross-selling opportunities. It will also create significant cost synergies by leveraging capabilities across the different parts of service solutions.

The combined Pilot Freight Services and Maersk scale will bring together approximately 150 facilities in the U.S., including distribution centers, hubs and stations.

Alright, let me wrap it up there. 

Below, David Brand, CEO of sustainable real assets investment manager New Forests describes the growing interest of institutional investors in the forestry sector, the opportunities in a circular bio-economy, and how New Forests is responding to this by developing a range of new investments, including participating in the mass timber construction revolution.

And founded in 1970, Pilot Freight Services LLC is a full-service transportation and logistics provider with over 75 locations throughout North America and Western Europe and 87 core international partners. The company’s freight forwarding services encompass every mode of transportation, including air, ground and ocean, serving all corners of the globe. Pilot’s logistics programs offer a complete line of expedited and time-definite services, international shipping solutions, e-commerce and home delivery solutions, product warehousing and inventory management.

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