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Dive Brief:
- RXO has entered into a definitive agreement to buy Coyote Logistics from UPS for $1.025 billion, according to a press release Sunday.
- RXO expects the deal to help diversify and expand its customer base, providing at least $25 million in synergies, according to the company.
- The deal could be completed by the end of the year, but Coyote will continue its ties to UPS through a contract with RXO which lasts until January 2030.
Dive Insight:
The deal will differentiate RXO and help reduce dead miles, CEO Drew Wilkerson said on a conference call Monday.
That’s because there’s little overlap between the two businesses’ biggest customers: Coyote’s top two industries are food and beverage and transportation, while RXO’s top customers are in retail, industrial and manufacturing, he said.
“This is a transformational deal for RXO,” Wilkerson said, adding that the acquisition will make the business the third-largest commodities brokerage in North America.
For UPS, the sale of the subsidiary allows the parcel giant to focus on its core business, said CEO Carol Tomé. a press release. That repeated comments he made in January during a Q4 earnings call that alluded to UPS’s interest in potentially offloading the business, following an $84 million impairment charge related to Coyote.
In 2021, UPS similarly spun off its LTL business unit when it sold its UPS Freight division to TFI International.
UPS acquired Coyote in 2015 for $1.8 billionbut executives noted in January how highly cyclical business activities and excess capacity in the market created ongoing issues.
Synergies represent about 30% of Coyote’s 2023 earnings before interest, taxes, depreciation and amortization (EBITDA), quite a large amount, according to Jamie Harris, CFO of RXO. He also noted that RXO has a strong mindset of continuous improvement, looking for ways to reduce costs within its own company. He suggested that this approach would continue to apply across the board post-acquisition.
“This is an opportunity,” Harris said. “We will see procedures from both companies. We’ll be able to get the best of both worlds.”
To complete the deal, equity investments will come from RXO’s shareholders, MFN Partners and Orbis Investments, totaling $550 million. Debt will also contribute.
As part of the deal, RXO will also acquire “certain assets used to conduct freight, dedicated transport and warehousing services in the United Kingdom,” according to securities deposit.
Once the transaction closes, Coyote employees will become part of RXO, and no decision has been made on further changes, a company spokesperson also said in an email to Trucking Dive.
“The addition of Coyote will greatly increase our scale,” Wilkerson said, noting that it will also provide further opportunities. “Our greater scale will allow us to buy transportation even better than we do today.”
In a similar move, digital freight platform Transfix recently sold its brokerage to NFI and spun off, making the 3PL the first third-party customer for its transportation management software.
RXO’s Wilkerson said they expect the industry to consolidate further over the next four or five years.
“Clients are going to want to do business with big brokerages that are financially stable, that have built good relationships, that have a strong carrier base, they’re going to be the winners in that,” he said. “And we think today’s move positions us even better to continue to get out there and take market share in that market.”