Investment Theme

Attractive unit economics, consolidation trends and market inefficiencies drive opportunities in the payments sector.

When Andy Roberts took over as CEO of Fleet One in 2001, he knew that he was looking at nothing short of a turnaround job. The marketplace for providing cash card services to trucking fleets was growing and evolving, but Fleet One was not.

As a former electronic payments executive, however, Roberts saw a market opening big enough to drive an 18-wheeler through. While the fleet services industry was growing, it remained dominated by providers to large national fleets. This created a significant opportunity to target mid-sized and smaller trucking companies that were being underserved.

In addition, the technological platforms in use by the incumbents were beginning to reach their limits in terms of efficiency and flexibility. This was a key insight, as Roberts grasped that fleet cards could do more than just provide purchase capabilities.

“Back then, we were just starting to understand how much data that fleet cards can generate,” explains Roberts. “We’re not just talking about purchase volumes of fuel and food, but also driver habits, route efficiency and discipline, what permits are needed from state to state – lots of stuff that affects the bottom line. This opens the door for all kinds of new services, but only if the underlying technology platform can grow to accommodate them.”

Roberts knew that with the right market focus, the right platform and product suite, and the right management team, he could not only stabilize Fleet One, but position it for aggressive growth. Over the next seven years, Roberts methodically put the pieces for his vision in place – even powering through the economic slowdown following the 9/11 attacks.

By 2008, Fleet One had turned the corner. The company had established a strong brand with robust products and feature sets. It had positive cash flow and was adding additional revenues through the new product and service offerings. More importantly, Roberts’s market thesis had been confirmed. The only thing left to do with Fleet One was to scale it up and grow exponentially.

At precisely this point, however, Fleet One’s parent company, SunTrust Banks, decided that they would monetize all of the regional bank holding company’s non-bank assets.  With his vision and his hard work on the line, and the job only half accomplished, Roberts wanted to step up as the buyer, but SunTrust’s public company status required a competitive bidding process. When an initial deal with the winning bidder fell through, the door opened for Roberts and the investment firm advising SunTrust on the sale, LLR Partners, to assemble a team of investors and attempt a spin out. But he had to act fast.

“I needed partners that I could trust,” recalls Roberts. “Someone with a strong understanding of the electronic payments sector. Someone very deeply connected in the financial space. And someone who would be proactive in helping us grow.”

After Roberts and LLR Partner Mitchell Hollin discussed their options, one of their first calls went to  Richard Garman at FTV Capital.

“I had worked with Andy in the past,” Garman explains, “and I knew he was a rock-solid operations guy and a tough competitor. More importantly, Fleet One met several key criteria that FTV uses to evaluate companies.”

In Fleet One, Garman saw strong cash flow, strong recurring revenue, and attractive unit economics. He also liked that the company experienced low credit losses. In researching the fleet card market, Garman discovered that many trucking companies in Fleet One’s target market segment were still not using card services. This represented an enormous opportunity for growth. As a market leader with a contemporary technology platform, Fleet One was already positioned to capitalize on it. Consequently, FTV decided to join another investment firm, LLR, in funding Fleet One’s spin out.

Once again, however, the march of history proved unkind to Roberts’s cause. Shortly after Fleet One embarked on its spin out, the financial meltdown of 2008 unfolded – nearly paralyzing the trucking sector.

Immediately, Garman and his FTV colleagues went to work connecting Fleet One with credit facilities to help build and support operations. In addition, Fleet One needed to build an accounting function from scratch, something the company did not need as a subsidiary of a larger corporation. Drawing on FTV’s extensive network, the FTV team connected Roberts with Ben Peters, who became Fleet One’s CFO.

“There’s more than one type of CFO out there,” explains Roberts. “I needed the type that rolls up his sleeves and gets deeply involved in operations and decision-making. FTV understood that, and Ben ended up being one of the best business partners I’ve ever had.”

Perhaps most importantly, Garman and FTV backed Roberts and his team in a number of key strategic choices. Rather than slash their ambitions, Roberts and company remained aggressive about growing.

First, they identified those companies and sub-sectors that were still succeeding in the challenging economic environment and focused their marketing efforts there. They also targeted companies who were paying the most for their legacy services and thus would save the most by switching to Fleet One. Second, Fleet One maintained its pre-meltdown credit standards and policies, which enabled its customers to operate on a “business as usual footing” when other providers tightening standards and limits. Third, Roberts ensured that Fleet One remained appropriately staffed to carry out core business functions, maintain high levels of customer service, and accommodate new growth. Fourth, the company selectively added services that it knew would at least break even. This included launching a new service that would help drivers manage the continuous need for new or different hauling permits as they drove from state to state.

“Under conditions like this, there’s no time to educate your investors,” says Roberts. “There’s no time to waste on second-guessing each other. So you have to ask yourself from the beginning, ‘Do my investors trust me enough to let me lead?’”

In this case, the answer was yes. Even as the total market shrunk, Fleet One gained share. By 2012, the company was growing quickly – having increased its revenue by 70 percent in the prior two years and tripling its EBITDA. As a result, Fleet One began to garner significant acquisition interest from larger industry players. With more 10 years of toil behind him, and his vision validated, Roberts – along with his investors – believed that the time was right to evaluate offers. Garman and FTV advised Roberts and his team in winnowing down Fleet One’s suitors to two. The process that culminated with a sale to Wright Express for $369 million.

“The entire experience working with Richard and FTV confirmed for me the importance of having a partner you can trust, and who trusts you,” reflects Roberts. “Writing a check is the easy part. True partners keep a cool hand during good and bad times. They trust you where you’re strong, and mentor you where you need support. And they open doors without pushing you through.”

I needed partners that I could trust,” recalls Roberts. “Someone with a strong understanding of the electronic payments sector. Someone very deeply connected in the financial space. And someone who would be proactive in helping us grow.