Knight-Swift jumps into hot LTL market with $1.35 billion takeover

Truckload carrier Knight-Swift Transportation Holdings Inc. today entered the less than truckload (LTL) space with a splash, becoming an “even more formidable” transportation and logistics provider through a $1.35 billion acquisition of LTL carrier AAA Cooper, the company said.

The company bought a 100% stake of Dothan, Alabama-based AAA Cooper Transportation and its affiliated entity AAA Cooper, a top-15-ranked LTL carrier that also offers dedicated contract carriage and ancillary services.

For the price tag, Phoenix-based Knight-Swift gains access to the extensive AAA Cooper network of approximately 70 facilities (90% owned, with the remainder leased), consisting of a terminal door count of over 3,400, located across the southeastern and midwestern U.S. The firm provides nationwide service through affiliations with other regional and national LTL companies. AAA Cooper’s fleet includes nearly 3,000 tractors and 7,000 trailers, operated by a workforce of some 4,800 people.

While that portfolio is large, it is a fraction the size of Knight-Swift, which had already operated the country's largest full truckload fleet, including 19,000 tractors, 58,000 trailers, and 24,000 employees. The company built that huge fleet through its own history of acquisition, dating back to 2017 when truckload carrier Knight Transportation Inc. completed a $6 billion merger with rival truckload carrier Swift Transportation LLC.

The purchase gives it an instant presence in the LTL sector, which has been under strain to provide enough freight capacity for the nation’s economic recovery from the pandemic recession. And the company said it plans to stay on the lookout for additional takeovers.

"In seeking our first LTL partner, we had three main requirements – the scale for entry with significant market share, the profitability and management depth to operate independently and provide a platform for compelling growth opportunities, and a world class culture,” Knight-Swift CEO Dave Jackson said in a release. “We were excited to have identified AAA Cooper as a partner that meets all three requirements, and I couldn’t be happier to finally find the right time for both of us to create a partnership. This transaction firmly positions us as a meaningful player in the LTL space, where we intend to grow both organically and through future acquisitions,” Jackson said.

The purchase could also be quite profitable. According to Knight-Swift, AAA Cooper is expected to generate approximately $780 million in revenue and $140 million in EBITDA (net income before interest, income taxes, depreciation, and amortization) for full-year 2021.

Investors say fleets are attracted to the LTL sector because it features consistent price increases, a consolidated nature—the top 20 LTL providers control about 87% of the U.S. market—and growth tailwinds generated by hot e-commerce demand and shifting supply chains, according to a release from Garrett Holland, a Baird senior research analyst.

Holland praised Knight-Swift (known as KNX for its stock symbol) for its move. “Through this opportunistic deal, KNX enters the LTL market, leverages its leading scale, and creates an even more formidable transportation/logistics provider. The addition of the LTL offering should help reduce KNX’s cyclicality overall, and management should be able to apply operational expertise to improve profitability/growth,” Holland said in the release.

In fact, other trucking carriers have also been positioning themselves to fit the changing market in recent months, such as Werner Enterprises Inc. buying the regional truckload carrier ECM Transport Group last week for $142.4 million and XPO Logistics spinning off its contract warehousing arm to focus on freight brokerage and LTL.

As an immediate impact of Knight-Swift’s move, AAA Cooper will continue to operate independently, while its CEO, Reid Dove, will continue in his position and also join the Knight-Swift board of directors. But on a longer-term basis, the company said it had “identified multiple areas of revenue and cost synergies that are expected to lead to growth and margin expansion consistent with Knight-Swift’s return on investment targets, while preserving AAA Cooper’s brand, locations, people, and culture.”