The parcel giant’s acquisition of Chicago-based freight brokerage is intended to leverage Coyote’s freight optimization technology and network of 35,000 carriers and 12,000 customers.
United Parcel Service Inc. has acquired the freight brokerage Coyote Logistics for $1.8 billion, the company said Friday.
Rumors of the deal for Chicago-based Coyote, which is a non-asset-based provider of transportation services, broke last week. Reports indicate UPS was primarily interested in Coyote’s proprietary freight technology, which would help UPS better utilize its capacity. UPS is acquiring Coyote from private equity firm Warburg Pincus.
Coyote had revenues of $2.1 billion in 2014, placing it among the upper echelon of North American freight brokers. According to UPS, the company has more than 35,000 trucking companies in its brokerage network and arranges 6,000 loads per day for more than 12,000 customers.
“The brokered full-truckload freight segment is a high growth market and we expect it will continue to outpace other transportation segments,” UPS Chief Executive Officer David Abney said in a statement. “This high quality acquisition significantly increases UPS full-truckload scale and we are uniquely positioned to take advantage of exciting new revenue growth and synergy opportunities.”
The company enjoys strong market positions among food and beverage, and consumer goods customers, as well as paper and packaging, industrial and retail segments, UPS added.
Coyote has played a key role in supporting UPS’ peak season operations over the past few years and UPS said it expects to leverage Coyote’s carrier network even further for this purpose in the future. UPS said it has also identified revenue growth and fleet efficiency synergy opportunities by hauling shipments arranged by Coyote using existing UPS backhaul capacity within its tractor/trailer fleet.
“We will now also have the technology to help our customers improve the utilization of their fleets as part of an extended network of carriers,” said Alan Gershenhorn, UPS executive vice president and chief commercial officer. “We see opportunities for greater customer and UPS fleet asset utilization that will deepen our partnerships with customers.”
Gershenhorn said in an interview with The Wall Street Journal that Coyote Logistics has been helping UPS to broker extra space for the holidays since 2012.
“The chemistry between the two companies has just been outstanding,” he said, adding that Coyote’s technology will allows its customers to book and sell empty space on existing truck runs.
UPS has about seven million empty trip legs annually.
“If Coyote gets a match that fits our system and that meets the needs of the customer, then UPS will move that,” he told the newspaper, also noting that UPS will offer its customers the ability to use the technology to fill their own empty trucks.
Abney said that in addition to Coyote’s core profitability, UPS is well positioned to realize a run-rate of $100 to $150 million of annual operating synergies, from backhaul utilization, purchased transportation and cross-selling opportunities.
Coyote founder Jeff Silver, who will remain head of the subsidiary, has previous history in being on the selling end of major acquisitions. He sold his previous company, American Backhaulers, to North American freight brokerage market leader C.H. Robinson for $136 million in cash and stock in 1999. Silver founded Coyote in 2006.
In 2012, American Shipper explored the issue of whether large brokerages were using technology to create market share barriers that smaller brokers would have difficulty overcoming. In the article, Silver said IT robustness was a key factor in securing larger shipper business.
“Right from the start with Coyote, we felt that in order to offer great service to our customer base, we needed scale, density, and a full suite of TMS (transportation management system) capabilities,” he said. “Coyote wanted to fill some market gaps. We needed to build out our internal and external capabilities immediately, so IT robustness was huge.
“In order to work with larger shippers that are very service and price sensitive, we needed to able to offer the right capacity at the right price, meaning a very dense network of trucks and loads,” added Silver. “In order to accomplish all of this, we also had to enable our sales force to work quickly and efficiently, linking with their carriers via all technologies and providing them instant access to the best loads for their trucks.”
The deal is expected to close within 30 days, subject to customary conditions and regulatory approvals, UPS said. The transaction will be financed with available cash resources and through existing and new debt arrangements. The acquisition is expected to be accretive to UPS earnings in 2016.
UPS purchases Coyote Logistics in $1.8b deal
