Truck brokerage firm RXO has agreed to acquire UPS Inc.’s freight brokerage arm Coyote Logistics for a “very reasonable price” of $1.025 billion in a deal that will instantly vault RXO from the 8th- to the third-largest freight brokerage in North America.
Financial analysts with TD Cowen said the deal, which is expected to close in late 2024, shows great timing, since it comes toward the end of a freight recession which has seen both carriers and brokers strive to survive in an era of historically low rates. “We are encouraged to see RXO seize this opportunity virtually at the bottom of the brokerage cycle,” Analyst Jason Seidl said in a note to investors.
Those financial pressures have even forced the failure in recent months of both carriers—such as Yellow Corp, which is now auctioning its assets to fund its bankruptcy—and brokers—such as Convoy, which closed its doors and sold off its remaining technology.
Another benefit of the deal is that there is “minimal customer overlap” between the two companies, with Coyote's business heavily focused on small and medium business (SMB) shippers and RXO's legacy business focused on larger enterprise customers, Seidl said. The same point holds true for the two firms’ carrier bases, with Coyote focused on smaller carriers and RXO accessing larger fleets.
RXO also gains instant market demand, saying that after the deal closes, it will continue to serve UPS’s brokered transportation needs under a contract that runs through January 2030. By recent rankings, the only two brokers in the U.S. with more revenue will be C.H. Robinson and Total Quality Logistics. That ascent marks swift growth for RXO, which was created barely two years ago through a spin-off from transportation and warehouse conglomerate XPO Logistics.
And it takes over a profitable business, since Coyote generated approximately $3.2 billion in revenue in 2023 with approximately $470 million in gross margin and approximately $86 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Charlotte, North Carolina-based RXO financed the deal partly through increased funding from two existing shareholders, including a $300 million equity investment from MFN Partners and a $250 million equity investment from Orbis Investments.
For UPS, the move marks the end of an initiative that saw straight-laced “Big Brown” jump into the nascent digital freight matching (DFM) sector by acquiring the hot startup Coyote for $1.8 billion in 2015. That experiment now comes to an end, as UPS goes back to basics, returning its focus to operations that drew $91.0 billion of revenue in 2023 through providing integrated logistics solutions for customers in more than 200 countries and territories. “As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell our Coyote Logistics business allows an even greater focus on our core business,” UPS CEO Carol Tomé said in a release.
