LOS ANGELES — Shortline company Regional Rail LLC is being sold.
The company formed in 2007 currently includes the East Penn Railroad, a 109-mile operation at two locations in Delaware and Pennsylvania; the Middletown & New Jersey, which operates 43 miles in Southeastern New York, and the Tyburn Railroad, which includes a terminal switching operation in Morrisville, Pa., between New York and Philadelphia. It also includes Diamondback Signal, which builds and maintains grade-crossing equipment.
It is being sold by Los Angeles-based Levine Leichtman Capital Partners to 3i Group plc, a London-based international private equity and infrastructure firm. Its diverse holdings include a Dutch discount retailer, Action; a plastics packaging firm; a share of a Nordic ferry consortium, Scandlines; Belfast City Airport in Northern Ireland; a pipline company in the United Kingdom, and airport baggage-cart firm Smarte Carte.
Levine Leichtman Partners describes itself as a firm that “has managed approximately $10.5 billion of institutional capital since its inception” and “invests in middle market companies located in the United States, the United Kingdom and Europe.”
Terms of the sale, announced this morning, were not disclosed.
It is the second shortline company to change hands in a week. On July 1, North America’s largest shortline holding company, Genesee & Wyoming, was sold to Brookfield Infrastructure. [See “Genesee & Wyoming sold in $8.4 billion deal,” Trains News Wire, July 1, 2019.]
So any thoughts on why private equity groups interested in shortline railroad operators?
I doubt its about expanding rail service and gaining more carload & customers. Instead, I feel like it is shortline industry version of precision railroading with equity companies seeing strong cashflows for which operations can be squeezed for cost savings in order to get a good return. Hopefully, the play book is not similar to private equity using a lot of debt to finance purchase of retail businesses and putting the debt on the company(s) they have bought.