Trucks at Work

Wheeling and dealing time for trucking

The news that United Parcel Service is buying Coyote Logistics for an eye-popping $1.8 billion primarily to expand its TL offerings is but one example of how deal-making is heating up in the transportation and logistics industry worldwide - but especially for trucking here in the good ol' U.S. of A.

Indeed, global consulting firm PricewaterhouseCoopers (PwC) recently noted that merger and acquisition (M&A) activity in the transportation and logistics space worldwide is going like gangbusters at least thru the first half of 2015, exceeding the 10% growth rate notched during the first half of last year.

PwC added in its Intersections quarterly analysis publication that such “robust deal activity” in the first half of this year drove gains of 15% in volume and 55% in value, compared to the same period in 2014.

“The first half of the year proved to be strong year for M&A activity in the transportation and logistics industry and deal value in the second quarter was the highest it has been in seven years,” added Jonathan Kletzel (at right), U.S. transportation and logistics leader for PwC.

“Cross-border and service line expansion were key themes that drove the rationale for deals in the second quarter, particularly in advanced economies,” he said ("advanced economies" meaning those like the U.S. – no duh).

“We expect cross-border activity to continue through the end of the year as businesses look to gain access in new markets and the strong dollar gives investors opportunities for outbound deals,” Kletzel stressed.

Here are a few more nuggets from PwC’s analysis:

  • The increase in cross-border deals is being primarily driven by corporate dealmakers seeking to gain a foothold in strategic markets to improve geographic reach and long-term growth. S
  • Strategic investors accounted for 56% of all transportation/logistics deal activity in the quarter and 71% of cross-border transactions.
  • Overall, in the second quarter this year, there were 61 announced merger/acquisition transactions worth $50 million or more for a total value of $34.4 billion.
  • That compares to 59 deals worth $29.6 billion in the previous quarter and 56 deals totaling $23 billion in the same period last year. 
  • Altogether, the first half of 2015 recorded 116 deals with a total value of $64 billion, easily exceeding the 101 transactions worth $40.8 billion in the first half of 2014.
  • Megadeal activity – that is, “super-size” transactions worth more than $1 billion – was responsible for the substantial increase in deal value in the second quarter, with nine transactions totaling $23.6 billion or 69% of all deal value.

Here’s the kicker, though – much of this activity is occurring in the trucking space; something Kletzel made a prediction about late last year.

PwC noted that trucking and logistics industries led second quarter deal activity, combining for more than half of the quarter’s deal volume, with trucking at 28% and logistics at 23%.

“Trucking deals remain of interest as larger companies continue to acquire smaller ones in order to increase market share while gaining capacity and talent,” Kletzel noted, pointing out that of the nine megadeals in the quarter, the largest was a logistics transaction worth $4.8 billion, while three “megadeals” in the trucking mode totaled up to some $7.6 billion in value.

UPS is certainly eyeing the trucking market in a big way with its Coyote deal, with truckload in particular attracting Big Brown’s attention.

“The brokered full-truckload freight segment is a high growth market and we expect it will continue to outpace other transportation segments,” noted David Abney, UPS CEO, in comments about the deal to acquire Coyote. “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.”

Indeed, Coyote has profitably handsomely from brokering TL capacity since its founding in 2006; growing to a $2.1 billion business in just nine years, even with the Great Recession thrown right in the middle of that time span.

Its carrier network right now numbers more than 35,000 trucking companies focused on several specific niches: food and beverage, consumer goods, paper and packaging, industrial and retail – and UPS thinks it can make quite a bit of money via that network.

“Through the Coyote network, UPS will provide our combined customer base with an even more seamless supply chain solutions portfolio from multi-modal freight shipments to small-package delivery,” noted Alan Gershenhorn (at left), executive VP and chief commercial officer at UPS.

“We will now also have the technology to help our customers improve the utilization of their fleets as part of an extended network of carriers,” Gershenhorn said.  “We see opportunities for greater customer and UPS fleet asset utilization that will deepen our partnerships with customers.”

“In addition to the core profitability of Coyote, UPS is well positioned to realize a run-rate of $100 million to $150 million of annual operating synergies, from backhaul utilization, purchased transportation and cross-selling opportunities,” added Abney.

He emphasized that during the peak holiday shipping season, UPS often supplements its fleet with contract transportation providers to meet customer demand – and Coyote played a big role in supporting UPS peak operations over the past few years. That’s’ why Abney (at right) expects to leverage Coyote’s carrier network even further for this purpose in the future.

“UPS is enthusiastic about this acquisition on many levels because there are opportunities for growth, synergistic efficiencies and transfer of best practices and systems across all of our operating segments,” he stressed.

Suddenly, trucking looks very attractive. Let’s see who else might get invited to do a deal-making dance down the road.

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