The fragmented U.S. truckload brokerage industry got a little less fragmented today as Echo Global Logistics Inc. said it acquired privately held Command Transportation LLC for $420 million, most of it in cash.
The combination of the two Chicago-area truck brokerages creates a firm with combined revenue of more than $1.7 billion, based on year-end 2014 totals, and with 34 offices across the U.S. Command CEO Paul Lobe, who founded the company in 2005 and built it into a business with $561 million in 2014 revenue, will join Echo's board of directors. Echo CEO Doug Waggoner will run the company, which will be called Echo. Command will become a wholly owned subsidiary. Danny Zamost, Command's president, will stay on to run the Command unit. The deal is scheduled to close by the end of June, and all Command employees will become part of Echo.
Command performs almost exclusively truckload brokerage, and is considered one of the best at its niche. Echo generates most of its revenue from truckload brokerage, but also performs less-than-truckload and intermodal brokerage services, and derives nearly 30 percent of its revenue from managed transportation.
The combination moves Echo into fourth place among U.S.-based truck brokerages, behind Eden Prairie, Minn.-based C.H. Robinson Worldwide Inc., the market leader; Cincinnati-based Total Quality Logistics, and Chicago-based Coyote Logistics LLC, according to estimates by John G. Larkin, lead transport analyst for investment firm Stifel, Nicolaus, & Co. Larkin ranked Echo ahead of Greenwich, Conn.-based XPO Logistics Inc., which has grown rapidly in the past four years largely through acquisitions, because XPO has recently pivoted away from brokerage to focus on deals elsewhere in logistics.
The transaction, while significant, still leaves the U.S. truck brokerage market, valued by the trade group Transportation Intermediaries Association (TIA) at about $136 billion a year, far from concentrated. Before the deal, it had been estimated that the top five players controlled, at most, 15 percent of the market. The field is populated by thousands of small operators, and, along with the truckload carrier sector, is one of the last two bastions of fragmentation in an otherwise consolidating transport marketplace.
The transaction is complementary in terms of geographic coverage, Echo said. Though both firms provide nationwide services, Echo's network is strongest west of the Mississippi River, whereas Command's niche is in the northeast and southeast. The northeast U.S. is a potentially lucrative market, but tough to crack for outsiders because it is so competitive. In an interview today, Waggoner said it is "remarkable" how little overlap exists between the two networks.
In the interview, Loeb said Waggoner and Zamost attended the same conference last June when the idea of an acquisition was first floated. Talks began in earnest last October, Loeb said. Until the June meeting, Loeb said, he had no interest in putting Command up for sale. While acknowledging that informal discussions about potential courtships occur frequently in the brokerage business, Loeb said no rival approached Command with the same depth and intensity as did Echo.
For Loeb, 57, the Echo acquisition will be his second big cash-out in the past 16 years. In 1999, American Backhaulers, a company Loeb founded in 1980 and which transformed the sleepy world of truck brokerage with the then-transformative use of information technology, was sold to C.H. Robinson for $136 million. Loeb founded Command after a five-year hiatus under a noncompete agreement that was a condition of the Robinson acquisition.
Larkin said Echo has eyed Command as an acquisition target for several years, and that the richly priced multiple—about 11.4 times the last 12 months' earnings before interest, taxes, depreciation, and amortization (EBITDA)—reflects Waggoner's desire to control the well-run and profitable concern. The high price tag may have scared away XPO and Coyote, Larkin said, while Robinson is still too busy digesting its late-2014 acquisition of broker Freightquote.com to have entered the bidding, and TQL seems content to focus on organic growth.
XPO was particularly interested in Command, but Loeb and Zamost expressed little interest, according to an industry source. Bradley S. Jacobs, XPO's founder, chairman, and CEO, did not respond to a request for comment.
Wall Street appeared to like the deal, sending Echo stock up $6.63 a share today to close at $32.02 a share.
Evan Armstrong, president of Armstrong & Associates Inc., a research consultancy that closely tracks the third-party logistics industry, said he was surprised that Loeb sold. "Our feeling was that there was some regret after selling American Backhaulers to C.H. Robinson," Armstrong said.
Armstrong called the purchase price for Command "healthy, but in the current market range." He noted that Echo has been looking to expand its truckload brokerage offerings, and that the acquisition of Command, one of the best in the business, helps Echo achieve that goal.