RXO entered into a definitive agreement to buy Chicago-based asset-light freight brokerage business Coyote Logistics for $1.025 billion from UPS. The deal is expected to close by the end of the year, subject to regulatory review and approval.
This deal will enhance RXO’s market position, diversify and expand its customer base, and broaden the carrier network. And at the closing of the deal, RXO will be the third-largest provider of brokered transportation in North America. Coyote Logistics works with 100,000 network carriers and manages 10,000 loads per day.
The deal is expected to be immediately and significantly accretive to RXO’s adjusted diluted earnings per share and adjusted free cash flow. Under the terms of the deal, RXO will pay $1.025 billion in cash for Coyote. And RXO will continue to serve UPS’s brokered transportation needs under a contract that runs through January 2030.
The acquired business generated about $3.2 billion in revenue in 2023 with approximately $470 million in gross margin and roughly $86 million of adjusted EBITDA. And RXO expects annualized cost synergies of at least $25 million.
The deal will be funded with a mix of equity and debt, including a $300 million equity investment from MFN Partners and a $250 million equity investment from Orbis Investments, two of RXO’s largest shareholders. And the transaction is backstopped by fully committed financing and is expected to be neutral to leverage.
RXO’s Board of Directors unanimously approved the deal, which is subject to customary closing conditions and regulatory approvals and is expected to close by the end of 2024.
Goldman Sachs is serving as financial advisor to RXO, and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as its legal advisor. And RXO reaffirms its second quarter adjusted EBITDA outlook and continues to expect adjusted EBITDA between $24 million and $30 million.
J.P. Morgan Securities is serving as the exclusive financial advisor to UPS, and King & Spalding is serving as the legal advisor to UPS.
KEY QUOTES:
“RXO’s highly accretive acquisition of Coyote will immediately increase the scale of our brokerage business, providing customers with more capacity across a wider array of power lanes. RXO will realize significant synergies from the acquisition by quickly integrating Coyote’s business into RXO and leveraging our cutting-edge technology. The addition of Coyote’s customer base will diversify RXO’s vertical mix and will increase the number of customers that do more than $1 million in business with us by approximately 80%. This acquisition will provide RXO with both immediate and long-term opportunities for revenue and earnings growth and will generate significant returns for shareholders. I look forward to welcoming Coyote’s employees to our team and working together to achieve excellent results for our customers, shareholders, carrier partners and employees for years to come.”
– Drew Wilkerson, chief executive officer of RXO
“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 Chief Executive Officer Carol B. Tomé
