United Parcel Service Inc. will buy Coyote Logistics in a $1.8 billion bid to jump into the freight brokerage business and improve holiday-season shipping performance.
The deal could help generate additional revenue and savings of as much as $150 million, UPS said Friday, as the company expands into the business of linking customers with thousands of haulers able to do the work. UPS could also tap into Coyote’s network of 35,000 trucking companies for extra help during its crucial November-December peak season.
Acquiring a freight broker that doesn’t have its own vehicles is a departure for Atlanta-based UPS. The world’s largest package-delivery company operates a fleet of 100,000 vehicles spanning trucks to motorcycles. Coyote had $2.1 billion in revenue last year, and while UPS doesn’t break out its full-truckload brokerage revenues, a spokesman, Steve Gaut, said the acquisition would accelerate those sales.
“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 Officer David Abney said in a statement.
The deal combines UPS and its 100,000 ubiquitous brown package vans and other vehicles with Coyote’s experience linking customers to a chain of 35,000 trucking companies. The partnership will help reduce the number of trips UPS drivers make without generating a return, according to Gaut.
After a delivery, UPS drivers often have to go back to their starting point, sometimes without much cargo to haul. UPS makes about 7 million of these so-called empty leg trips every year. Coyote, whose clients range from food and drink companies to retailers and paper and industrial firms, should be able to help fill some of those empty trailers with customers’ goods in the future, Gaut said.
While trucking companies aren’t typically seen as hip, Chicago-based Coyote has a young workforce and a fast, trading-floor feel, as employees match shippers with haulers, Gaut said.
Founded in 1907, UPS is acquiring a 9-year-old company most recently owned by private-equity firm Warburg Pincus. While Robert W. Baird & Co. analyst Ben Hartford speculated in a July 23 note that Coyote’s “youthful, ’Millennial’ culture” could be a challenge for UPS to absorb, Gaut played down such concerns.
“We’re going to operate this business as a subsidiary of UPS so they will keep their brand, their facilities, their secret sauce,” he said.
UPS gained 1 percent to $102.36 at the close in New York. The stock is down 7.9 percent this year compared with a 2.2 percent gain in the Standard & Poor’s 500 Index..
William Blair & Co. analyst Nate Brochmann said the purchase would give UPS a foothold in an area it’s been lacking, and follows a pattern of transportation companies offering many types of services.
“With better technology and visibility into supply chains today, there are now more opportunities for transportation providers to be one-stop shops,” Brochmann wrote in a July 23 note after news of a potential deal broke.
The transaction would be the third-largest logistics deal this year as the industry consolidates amid rising consumer demand. In April, FedEx Corp. agreed to buy Dutch delivery company TNT Express NV for $4.8 billion. Days later, XPO Logistics Inc. agreed to acquire France’s Norbert Dentressangle SA in a deal valued at $3.53 billion including debt.
UPS has focused on smaller purchases since European regulators thwarted its attempt to purchase TNT for about $6.9 billion in 2012. That same year it purchased a Belgian company, Kiala, that set up a system where customers could have packages delivered to a nearby store, instead of their homes. UPS has expanded this service under its Access Point brand, announcing earlier this week it will offer it in 100 additional U.S. cities.
In June, a UPS subsidiary bought a small logistics firm serving the jewelry business called Parcel Pro. Terms weren’t disclosed.