The logistics market is continuing to consolidate, with United Parcel Service’s Friday announcement that it plans to buy Coyote Logistics from private equity firm Warburg Pincus for $1.8 billion.
Chicago-based Coyote arranges customers’ freight shipments on available trucking capacity contracted to members of its large carrier network, numbering more than 35,000 trucking companies. UPS has used Coyote during peak holiday seasons to supplement its fleet, and the Atlanta company has identified revenue growth and fleet-efficiency synergy opportunities by hauling shipments arranged by Coyote using existing UPS backhaul capacity within its tractor/trailer fleet.
“The brokered full-truckload freight segment is a high growth market and we expect it will continue to outpace other transportation segments,” UPS chief executive David Abney said in a press release. “This high-quality acquisition significantly increases UPS full-truckload scale and we are uniquely positioned to take advantage of exciting new revenue growth and synergy opportunities.”
Founded in 2006, Coyote reported annual revenue of $2.1 billion in 2014. The deal, expected to close within 30 days, will be financed with available cash resources and through existing and new debt arrangements. The acquisition is expected to be accretive to UPS earnings in 2016.
Brokers such as Coyote Logistics and XPO Logistics have reported rapid revenue growth in the past few quarters as the demand for trucks jumped due to widespread bottlenecks on rail networks, according to Reuters.
“This deal shouldn’t move the needle at UPS, but could support shares of smaller brokers near-term by driving further consolidation speculation,” Susquehanna Financial Group analyst Bascome Majors wrote in a note on July 22, when Bloomberg reported a possible UPS-Coyote Logistics deal.
Third-party logistics providers have recently been snapped up in a series of deals, including XPO Logistics’ purchase of France-based Norbert Dentressangle SA and Goldman Sachs’ acquisition of Neovia Logistics. PwC said that M&A activity for the U.S. transportation and logistics industry this year should continue.