RXO became the third-largest freight broker in North America on Monday, completing its acquisition of Coyote Logistics from UPS.
The combination gives RXO (NYSE: RXO) a $7 billion top line with multiple growth opportunities. It adds new power lanes and expands density on existing lanes. Coyote has a large presence in the food and beverage vertical and will continue to support UPS (NYSE: UPS) with transportation services through 2030.
The deal brings little customer overlap as RXO has traditionally served the retail and e-commerce, and industrial and manufacturing segments. Coyote has a relationship with only three of RXO’s top 25 customers. It mostly works with large carriers and private fleets, whereas the RXO network was built on small carriers. Once integrated, the RXO platform will have 150,000 carriers providing capacity.
The $1.025 billion deal was executed at roughly 12 times trailing adjusted earnings before interest, taxes, depreciation and amortization and just nine times when including acquisition synergies.
RXO CEO Drew Wilkerson told investors last week at a Morgan Stanley (NYSE: MS) conference that the combined entity’s $5 billion to $6 billion purchased transportation expense line presents the biggest opportunity for further cost reductions as both platforms will benefit from each other’s scale when buying capacity. That’s in addition to the $25 million in cost synergies outlined when the deal was announced in June.
“Look at where we are in the cycle. This is like a dream come true for us to be able to buy a scaled asset at the bottom of the cycle to position ourselves even stronger for the inflection,” Wilkerson said at the event.
RXO funded the deal through a pair of equity sales, including to top holders MFN Partners and Orbis Investment Management. Goldman Sachs (NYSE: GS) was RXO’s financial adviser on the transactions.
UPS acquired Coyote for $1.8 billion in 2015. The sale is part of UPS’ “better not bigger” strategy, which has the company primarily focused on its massive parcel business. The change came about shortly after CEO Carol Tomé took over in 2020. The company sold its less-than-truckload unit to TFI International (NYSE: TFII) in 2021.
“This acquisition enables us to provide customers with even more capacity,” Wilkerson said in a Monday news release. “Our larger scale will provide carriers with access to more freight.”
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