XPO’s Biggest Deal Yet Sets It Up as Buyer or Seller: Real M&A

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XPO Logistics Inc. investors who liked the company’s biggest acquisition have more to look forward to.

The latest purchase, a takeover of French trucking company Norbert Dentressangle SA for $3.53 billion including net debt, will make the manager of cargo shipments a one-stop shop for supply-chain services and allow it to tap into a larger base of multi-national customers, said David Campbell, an analyst at Thompson Davis & Co. The combined company will have about $8.5 billion in revenue, more than triple XPO’s sales last year.

XPO Chief Executive Officer Brad Jacobs says this is only the “early innings” of the company’s growth plan. That’s fueling expectations for more deals in Europe or elsewhere. Shares of the $3.9 billion company surged 15 percent on Wednesday, touching a new high.

“This is a cornerstone acquisition for them,” Scott Schneeberger, an analyst at Oppenheimer Holdings Inc., said in a phone interview. “It gets them a beachhead in Europe. But these guys are built to do more than one deal at a time even if they did a big one.”

Takeover ‘Endgame’

As Greenwich, Connecticut-based XPO joins the ranks of the world’s top logistics providers, it also could find itself in an acquirer’s sights, said Kevin Sterling of BB&T Corp. The company could be an attractive consolation prize for United Parcel Service Inc., whose attempt to take over TNT Express NV was foiled by regulators, Sterling said. FedEx Corp. agreed on April 7 to buy TNT for $4.8 billion.

“That could be the endgame for XPO in a couple of years,” he said in a phone interview. “Look at the acquisition spree that FedEx has been on recently. UPS is sitting on a ton of cash. Ultimately, down the road, could XPO be a potential target? You’ve got to think they’d be on UPS’s radar screen.”

A representative for Atlanta-based UPS said the company doesn’t comment on speculation.

Jacobs has built companies up to sell them before. He founded United Waste Systems Inc. in 1989, and then about 250 acquisitions later, sold it to the company now known as Waste Management Inc. for more than $2 billion in 1997. He struck a deal to sell United Rentals Inc. to Cerberus Capital Management in 2007 but the private-equity firm walked away amid the credit-market collapse.

XPO focuses on freight services for large industrial items, while TNT specializes in small parcel delivery. So the two aren’t perfect substitutes, but the European road network that XPO is gaining with Norbert could be attractive to UPS, Sterling said. If any deal were to happen, it would likely be several years down the road, he said.

Big Boost

XPO had set targets for $9 billion in revenue and $575 million in earnings before interest, taxes, depreciation and amortization by 2017. The acquisition of Norbert gets it most of the way there and puts the company on track for as much as $15 billion in revenue and $1 billion in Ebitda, according to John Mims of FBR & Co. At those levels, the company could command a market value of as much as $10 billion, he said.

That would make it one of the biggest transport-services and trucking takeover targets of all time, according to data compiled by Bloomberg.

“Ultimately, it could make a nice target,” Schneeberger of Oppenheimer said in a phone interview. “I don’t think that conversation is being had now. They can do a good job and increase their value significantly on their own in the coming years.”

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