Introduction

Our firm was engaged by a leading infrastructure investment firm to conduct operational due diligence on a rail services and terminal operations company. The target company operates over 40 rail service locations and terminals across North America, providing industrial switching, terminal operations, and rail infrastructure services. Our team of transportation industry experts conducted a comprehensive analysis of the company’s growth strategy, operational capabilities, and expansion plans. The 10-week assessment examined historical performance, revenue streams, capital expenditure requirements, and growth opportunities, with particular focus on validating the company’s ability to expand operations from its Canadian base into U.S. markets.

At A Glance

Our consulting team leveraged its deep rail industry expertise to evaluate the target company’s operational model, growth projections, and expansion strategy. Our analysis focused on validating revenue forecasts, assessing capital requirements, and evaluating management’s ability to execute their growth plans.

Requirements:

  • Extensive experience conducting operational due diligence in rail and terminal operations
  • Deep understanding of North American rail networks and Class 1 railroad relationships
  • Proven track record evaluating infrastructure assets and growth strategies

The Challenge

The target company projected aggressive growth through expansion of its successful Canadian operations model into U.S. markets. Management forecasted growth in the number of industrial rail service locations and terminals by 2027, requiring hundreds of millions in capital expenditure. Key questions included the sustainability of historical growth rates, reasonableness of projected returns on new investments, and ability to replicate their Canadian success in U.S. markets. The company’s heavy reliance on Canadian Class 1 railroad relationships and limited U.S. presence raised concerns about their ability to establish similar partnerships with U.S. railroads. Additionally, the company faced established competitors in the U.S. market and potential challenges in securing trackage rights from U.S. Class 1 railroads.

PraxiChain Solution

  • Conducted detailed analysis of historical growth drivers and projected revenue streams
  • Evaluated capital expenditure requirements and projected payback periods for new facilities
  • Assessed management team capabilities and relationships with Class 1 railroads
  • Analyzed competitive landscape and barriers to U.S. market entry
  • Validated sustainability of core revenue streams including car storage and switching services
  • Developed detailed recommendations for additional due diligence on growth assumptions

Results

The analysis identified several key risks in management’s growth projections. While base business operations were sound, expansion plans appeared aggressive given the company’s limited U.S. presence and the competitive landscape. The projected new service locations would require establishing new customer and railroad relationships in an environment dominated by established players. Capital expenditure assumptions for each new site appeared low given varying service requirements. Additionally, the company’s reliance on trackage rights agreements posed risks as U.S. Class 1 railroads historically restrict third-party access. The assessment recommended focused additional due diligence on customer pipeline, railroad relationships, and location-specific capital requirements before proceeding. The findings enabled the client to make an informed investment decision based on realistic growth expectations.