By Laura Stevens
United Parcel Service Inc. said it would buy transportation and
shipping services provider Coyote Logistics LLC for $1.8 billion,
an acquisition that will add in-house technology to fill empty
space on existing trucks.
UPS, which is acquiring Coyote Logistics from private-equity
firm Warburg Pincus LLC, said Friday that the acquisition should
create $100 million to $150 million in annual operating synergies
and start adding to earnings in 2016. Coyote Logistics will operate
as a separate subsidiary and keep its name.
The move will add new service offerings to UPS's portfolio in
the fast-growing freight brokerage business at a time when the
delivery giant has been striving to maintain its profitability and
reduce costs after tough back-to-back holiday seasons and a
movement among shippers toward slower and cheaper delivery
methods.
Revenue for U.S. third-party logistics providers, which provide
services ranging from booking truck drivers to managing warehouses,
rose 7.4% to $157.2 billion last year, faster than the 2.8% growth
in logistics spending overall, according to research firm Armstrong
Associates.
Coyote Logistics reported annual revenue of $2.1 billion in 2014
and is growing by double digits each year, according to UPS.
Coyote Logistics and UPS have been working together since 2012
during the delivery giant's all-important peak holiday seasons, UPS
Chief Commercial Officer Alan Gershenhorn said in an interview with
The Wall Street Journal. Coyote Logistics has been helping UPS to
broker extra space for the holidays, he said.
"The chemistry between the two companies has just been
outstanding," Mr. Gershenhorn said.
One of the biggest additions to UPS's portfolio will be Coyote
Logistics's technology, which allows its customers to book and sell
empty space on existing truck runs, Mr. Gershenhorn said. UPS has
about seven million empty trip legs annually, and filling that
space will boost revenue.
"If Coyote gets a match that fits our system and that meets the
needs of the customer, then UPS will move that," he said. UPS also
will offer its customers the ability to use the technology to fill
their own empty trucks.
Some analysts have questioned the compatibility of Chicago-based
Coyote Logistics and UPS. As a freight broker, Coyote Logistics
acts as a kind of travel agent for freight and doesn't own its own
trucks. UPS primarily owns its own fleet, although it has a small
in-house brokerage service already.
Analysts also say there is danger of a culture clash. Coyote,
launched in 2006, has a startup culture, with a young employee base
hired in and trained from scratch. At more than a century old, UPS
has more of a militaristic culture built from drivers and package
sorters who work their way up the chain.
UPS has had a troubled history with some of its acquisitions, in
part because UPS's very distinct culture that hasn't always blended
with some of the freewheeling operations at companies they have
acquired, said Daniel Herron, a former logistics industry executive
who now works as a consultant in mergers and acquisitions. "The
integration in these acquisitions is the difficult part," he
said.
Mr. Gershenhorn said UPS will keep Coyote Logistics as a
separate subsidiary, fully connected but not fully integrated.
"There's not a whole lot of integration costs. We're going to be
able to get up and running very quickly," he said. "We're not
military at UPS. We're structured and cost efficient. I think the
cultures are going to mesh great."
On Tuesday, UPS reported strong earnings as income nearly
tripled to $1.2 billion. The company's supply chain and freight
operation segment's revenues fell 4.5% to $2.2 billion, but
operating profits increased 18% over the prior year when excluding
special items. The division is currently UPS's smallest,
contributing about 17% of total revenue.
The Coyote Logistics deal is expected to close within 30 days
and will be financed with cash and new and existing debt
arrangements, UPS said.
The acquisition is one in a string of recent deals in the
transportation industry, including FedEx Corp.'s nearly $5 billion
bid to acquire Dutch parcel shipper TNT Express NV and XPO
Logistics Inc.'s purchase of French contract-logistics firm Norbert
Dentressangle SA in a deal valued at $3.53 billion.
Write to Laura Stevens at laura.stevens@wsj.com
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