RXO is set to expand market presence with planned acquisition of Coyote Logistics

Atlanta-based global freight transportation and logistics services provider UPS said today it had formally entered into an agreement to sell its Chicago-based truckload brokerage business unit, Coyote Logistics, to Charlotte, N.C.-based full truckload brokerage RXO Logistics, for $1.025 billion.

UPS said that this transaction is expected to close by the end of the year and is subject to regulatory review and approval.

“As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell our Coyote Logistics business allows an even greater focus on our core business,” said UPS Chief Executive Officer Carol B. Tomé in a statement.

This move does not come as a total surprise, given that on the company’s fourth quarter 2023 earnings call, on January 30, UPS CEO Carol Tomé said UPS was planning to “explore strategic alternatives” for Coyote, which was part of the company’s Supply Chain Solutions (SCS) business.

Coyote was acquired by UPS in July 2015 for $1.8 billion. At that time, the deal was viewed as significant in myriad ways, most notably in how it would equip UPS as a major player in an increasingly crowded truckload brokerage space by acquiring Coyote, a company that was clearly on the rise with an excellent reputation throughout the industries it serves.

Coyote Logistics was established in 2006 and reported annual revenue of $2.1 billion in 2014, the last full year prior to the sale to UPS. Prior to that, Coyote significantly increased its scale and reach, when it reached a merger agreement in March 2014 with Access America Transport, with Access America operating under the Coyote brand.

RXO said that when the deal becomes official later this year, it will create the third-largest provider of brokered transportation in North America and be a “scaled industry leader,” while also expanding RXO’s market position with increased capacity for customers and increased access to freight for carriers.

“RXO’s highly accretive acquisition of Coyote will immediately increase the scale of our brokerage business, providing customers with more capacity across a wider array of power lanes,” said Drew Wilkerson, chief executive officer of RXO, in a statement. “RXO will realize significant synergies from the acquisition by quickly integrating Coyote’s business into RXO and leveraging our cutting-edge technology. The addition of Coyote’s customer base will diversify RXO’s vertical mix and will increase the number of customers that do more than $1 million in business with us by approximately 80%.

This acquisition will provide RXO with both immediate and long-term opportunities for revenue and earnings growth and will generate significant returns for shareholders. I look forward to welcoming Coyote’s employees to our team and working together to achieve excellent results for our customers, shareholders, carrier partners and employees for years to come.”

An RXO spokeswoman told LM that the addition of Coyote will significantly increase RXO’s scale and enable the company to provide customers with even more capacity across a wider array of power lanes enable it to provide carriers with access to more freight and reduce their deadhead miles.

“In addition, the acquisition will enable us to provide carriers with access to more freight and reduce their deadhead miles,” she said. “The acquisition will make RXO the third-largest brokered transportation provider in North America, and it will enable us to increase our network density and power lanes, which will benefit customers and carriers. Coyote brings new customers across new verticals to RXO. There is minimal customer overlap. Also, the two organizations share a focus on technology and customer service.”

Coyote brings 15,000 customers to RXO along with roughly 97,000 carriers it does business with. The company has around 2,500 employees. Its top verticals are food & beverage and transportation. RXO has around 4,000 customers and works with around 115,000 carriers and has 2,150 employees. RXO’s top verticals are in retail/e-commerce and industrial/manufacturing.

On the aforementioned earnings call earlier this year, UPS CEO Tomé said that when UPS acquired Coyote, the strategic rationale, for the deal, was really about expanding the UPS portfolio. But that was to come with a caveat, something which was unknown at that time.

That caveat, she explained, was that UPS may not have fully understood, at that time, just how cyclical the truckload brokerage business is.

“When we acquired Coyote in 2015, the revenue in the previous year for Coyote was $2.1 billion,” she said. “During COVID, Coyote peaked up to over $4 billion in revenue. Well, it's gone way down since then. In fact, if you look at our Supply Chain Solutions business, it was down $3 billion year-on-year, which is a third of the overall company decline. Within that $3 billion, Coyote made up 38% of the decline for the year and 48% of the decline for the fourth quarter. So, you can see the volatility in the revenue line, and then we've got a business that has a very low margin. If you've got that kind of volatility on the revenue line, you're going to have even more volatility on the earnings line.”

In turn, Tomé explained that the steep decline led UPS to ponder alternatives to provide the same service, minus the high overhead, or consider that the Coyote business may be worth more to another entity than it is to UPS.

Ben Gordon, founder and managing partner of Palm Beach, Florida-based Cambridge Capital, and managing partner of Ben Gordon Strategic Advisors (BGSA), told LM that RXO was the natural buyer for Coyote.

Evan Armstrong, CEO of Milwaukee-based supply chain consultancy Armstrong & Associates, described this deal as an excellent acquisition for RXO as it picks up Coyote, a Top 10 Domestic Transportation Management 3PL, for $1.025B at an estimated multiple of 11.9x EBITDA in a depressed market.

“RXO will now have over $7B in gross revenue, making it the third largest Domestic Transportation Management 3PL in the U.S. after C.H. Robinson and J.B. Hunt,” he said. “UPS’s acquisition of Coyote started to unravel after about a year as key Coyote management began its exodus from the big brown machine. Having known both organizations, it is easy to see there was a cultural misalignment. Ultimately, UPS grew tired of its foray into the competitive Domestic Transportation Management 3PL Segment and will now concentrate on its small package oligopoly.”