XPO buys Canadian broker for $8 million in cash

XPO Logistics Inc.—the company formed by entrepreneur Bradley S. Jacobs to establish a multi-billion dollar footprint in the truck brokerage, expedited transport, and freight forwarding industries—has acquired Kelron Logistics, a Canada-based broker, for $8 million in cash.

Last year Jacobs invested $150 million in cash in a non-asset-based expedited transportation company called Express-1 Expedited Solutions Inc., renamed the company, and installed himself as CEO. He aims to construct a $5 billion-a-year to $6 billion-a-year company mostly by unifying a deeply fragmented truck brokerage segment through a combination of acquisitions and organic expansion that XPO calls "cold starts."

Mississauga, Ontario-based Kelron marks XPO's second acquisition; the first was Continental Freight Services Inc., a South Carolina-based broker that XPO bought in May for an undisclosed sum. Kelron generates 80 percent of its business within the United States or in the U.S.-Canada trans-border trade. As of June 30, Kelron had reported $100 million in annual revenue.

XPO has also recently added brokerage locations in Chicago; Jacksonville, Fla.; Morris County, N.J.; and Montgomery, Ala., bringing the number of new brokerage locations to seven. It had planned to add five "cold starts" to its broker network by the end of 2012. It has also added a location in Birmingham, Ala., for its expedited business and another in Los Angeles to support its freight forwarding network.

Jacobs has set a goal for XPO to hit about $500 million in annual revenue in 2012, more than double its 2011 revenue totals. The revenue brought in by the Kelron acquisition puts XPO at about $320 million through early August, according to estimates from John G. Larkin, the lead transport analyst at investment firm Stifel, Nicolaus & Co.

In a research note published Tuesday, Larkin said XPO would more than likely hit the $500 million mark by closing on five to seven deals with companies each generating between $25 million and $35 million in gross revenue.

On Monday, XPO reported second quarter revenue of $54.5 million, a 23.7-percent increase from the same period in 2011. The company posted a $5.2 million net loss for the quarter, compared with a net income of $914,000 for the same period in 2011. Analysts expect the company to post net losses into 2013 as it incurs significant costs while building its business and turning around Kelron, which has struggled for profitability in recent quarters.

In a statement announcing the second-quarter results, Jacobs said XPO "is either on track or ahead of schedule" with the core components of its business plan. Jacobs noted that the company doubled its brokerage revenue from year-ago levels and that its freight forwarding unit, Concert Group Logistics, reported its first year-over-year revenue increase in five quarters.