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Auxo Investment Partners acquires railroad maintenance company, expects further growth in sector

BY Monday, October 25, 2021 05:01pm

GRAND RAPIDS — Private equity firm Auxo Investment Partners has entered the railroad business with the acquisition of maintenance company Genesis Rail Services LLC.

The Grand Rapids-based Auxo Investment Partners acquired a majority stake in the Bluefield, W. Va.-, and Roanoke, Va.-based Genesis Rail Services. The deal comes amid expectations for strong rail industry growth in the coming years from restocking low inventories that resulted from pandemic-related supply chain disruptions, as well as a driver shortage in the trucking industry. The resulting increase in rail traffic will mean increased maintenance of rail lines and their right of ways.

The 12-year-old company provides maintenance, mechanical and construction services for industrial railroads across the U.S. Genesis Rail Services’ clients are Kansas City Southern, Norfolk Southern, Canadian National, Amtrak and Florida East Coast Railway.

“We like a lot of dynamics here and just the long-term growth potential. Just the fact that this type of work within the railroad business is chronic maintenance that has to be done year in and year out: We like that dynamic of the type of work Genesis does,” said Jeff Helminski, Auxo’s co-founder and managing partner.

Genesis represents “an interesting starting point for us in the industry,” and Auxo intends to invest further in the sector, Helminski added. Auxo is presently weighing three add-on investments in the rail industry, he said.

“We think there’s a lot of organic growth potential in Genesis, and there’s also a lot of acquisitive growth. It’s a very fragmented market,” he said. “We believe we can build a very substantial platform in this space.”

Terms of the deal, which closed this past summer and was publicly announced Monday, were undisclosed. Cody Harman, son of Genesis Rail Services founder Jeff Harman, retained a minority stake in the company and continues running day-to-day operations as he’s done since 2017.

Auxo connected with Genesis through an investment bank that was marketing the company as Cody Harman sought to buy out his father’s interest and needed capital to sustain growth, Helminski said.

An announcement on the Auxo deal noted that the seven Class I railroads — defined as railroads earning about $900 million or more in annual revenues — have an estimated repair budget of $7.2 billion combined. Genesis works with many rail companies in the Class I and Class II railroad categories.

“Given strong industry tailwinds and our company’s history of success, Auxo’s hands-on operational approach and impressive resources come at a perfect time,” Cody Harman said in a statement. “It was important to find a trustworthy partner who was extraordinarily knowledgeable about the railroad industry. With Auxo as a partner, our goal is to eventually provide maintenance of way and mechanical services to every Class I and Class II railroad in the country by growing and expanding our current offerings.”

Advisers and lenders to Auxo on the deal included Miller Johnson PLC, Barnes & Thornburg LLP, BDO USA LLP, Marsh & McLennan, Aon Plc, Strategies Wealth Advisors, Krauter & Co., Thomas Brady & Associates, and Miedema Appraisals.

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