XPO Logistics Inc., a transportation broker, freight forwarder, and expedited transportation company, said today it has acquired 3PD Inc., the largest non-asset based provider in the fast-growing segment of "last-mile" logistics. Last-mile providers typically deliver heavier weighted goods such as appliances and desks from distribution centers and stores to residences, businesses, and job sites.
XPO, based in Greenwich, Conn., will pay $359 million in cash and $8 million in restricted stock for Marietta, Ga.-based 3PD. The transaction is expected to close in the third quarter. It is XPO's largest acquisition since its launch in 2011.
3PD, which acts as an intermediary between manufacturers, retailers, and end customers, manages twice as many last-mile deliveries a year as its nearest competitor, according to XPO. It relies on a large network of local and regional delivery firms, whose deliveries can be as short as one mile or as long as 150 miles. 3PD handles deliveries for large customers under dedicated contract carriage and will also manage one-off deliveries not under contract.
3PD, which is privately held, generated $319 million in revenue in the 12-month period ending May 31. Through May, its earnings before interest, taxes, depreciation, and amortization (EBITDA) were up 36 percent from the year-earlier period.
All of 3PD's executives will join XPO after the transaction, XPO said. 3PD was founded in 2001 by brothers Karl and Randy Meyer. Karl Meyer, who is chairman and CEO, had served as corporate delivery manager for mega-retailer Home Depot Inc. The Meyers (Randy is 3PD's CFO) started the company because they felt they could do a better job providing last-mile deliveries than either large shippers or big retailers.
XPO estimated that shippers spend about $12 billion a year on the last-mile deliveries of goods generally weighing more than 150 pounds. Manufacturers and retailers increasingly outsource the function because it is outside their core competency and can be executed more cost-effectively by a specialist. The outsourcing trend is expected to accelerate as the growth of digital ordering results in accelerating volumes.
Last-mile delivery is one of the few areas of transportation that has not become price commoditized, mainly because of the premium placed on the speed, accuracy, and precision of the delivery. It is also a high-margin, high-barrier-to-entry business that 3PD has come to dominate because of its large-scale investments in technology that, among other things, provides up-to-the-minute shipment status information and allows 3PD to winnow out delivery firms that don't meet its service standards. Not surprisingly, truckers and third-party logistics companies are entering the field, attracted by the high margins and the ability to add another arrow to their service quiver.
Bradley S. Jacobs, XPO's chairman and chief executive officer, said the acquisition is an excellent strategic fit because XPO generally brokers shipments that move from the factory to either the warehouse or DC. "Our destination is their origin," he said in a phone interview today.
XPO said the transaction would immediately add to its bottom line. Financial markets applauded the deal, sending XPO stock up $2.13 a share, to $21.10 a share, as of mid-day trading on the New York Stock Exchange.
XPO expects 2013 revenue to exceed $1 billion as it builds its business through acquisitions and organic growth. Most of its revenue comes from the truck brokerage segment, a $50 billion a year business that is highly fragmented.