RXO’s acquisition of Coyote Logistics is now a done deal

Following a June announcement in which Atlanta-based global freight transportation and logistics services provider UPS said it had formally entered into an agreement to sell its Chicago-based truckload brokerage unit, Coyote Logistics, to Charlotte, N.C.-based full truckload broker RXO Logistics, for $1.025 billion, RXO said today that the deal is now official.

This acquisition makes RXO the third-largest North American-based provider of brokered transportation, according to RXO officials, with a company official telling LM that bringing Coyote into the fold expands its market position with increased capacity and network density for customers, as well as increased freight for carriers, with more access to its shipper customers and also opportunities to reduce deadhead miles.

“We’re thrilled to welcome Coyote’s employees, customers and carriers to RXO,” said Drew Wilkerson, CEO of RXO. “This acquisition enables us to provide customers with even more capacity. Our larger scale will provide carriers with access to more freight. As we work to integrate Coyote’s people and technology into our business, we remain focused on providing the best service, most comprehensive set of solutions, continuous innovation and deep relationships for our customers.”

Coyote was acquired by UPS in July 2015 for $1.8 billion. At that time, the deal was viewed as significant in myriad ways, most notably in how it would equip UPS as a major player in an increasingly crowded truckload brokerage space by acquiring Coyote, a company that was clearly on the rise with an excellent reputation throughout the industries it serves.

Coyote Logistics was established in 2006 and reported annual revenue of $2.1 billion in 2014, the last full year prior to the sale to UPS. Prior to that, Coyote significantly increased its scale and reach, when it reached a merger agreement in March 2014 with Access America Transport, with Access America operating under the Coyote brand.

Coyote brings 15,000 customers to RXO along with roughly 97,000 carriers it does business with. The company has around 2,500 employees. Its top verticals are food & beverage and transportation. RXO has around 4,000 customers and works with around 115,000 carriers and has 2,150 employees. RXO’s top verticals are in retail/e-commerce and industrial/manufacturing.

On an earnings call earlier this year, UPS CEO Carol Tomé said that when UPS acquired Coyote, the strategic rationale, for the deal, was really about expanding the UPS portfolio. But that was to come with a caveat, something which was unknown at that time.

That caveat, she explained, was that UPS may not have fully understood, at that time, just how cyclical the truckload brokerage business is.

“When we acquired Coyote in 2015, the revenue in the previous year for Coyote was $2.1 billion,” she said. “During COVID, Coyote peaked up to over $4 billion in revenue. Well, it's gone way down since then. In fact, if you look at our Supply Chain Solutions business, it was down $3 billion year-on-year, which is a third of the overall company decline. Within that $3 billion, Coyote made up 38% of the decline for the year and 48% of the decline for the fourth quarter. So, you can see the volatility in the revenue line, and then we've got a business that has a very low margin. If you've got that kind of volatility on the revenue line, you're going to have even more volatility on the earnings line.”

In turn, Tomé explained that the steep decline led UPS to ponder alternatives to provide the same service, minus the high overhead, or consider that the Coyote business may be worth more to another entity than it is to UPS.

Evan Armstrong, CEO of Milwaukee-based supply chain consultancy Armstrong & Associates, described this deal as an excellent acquisition for RXO as it picks up Coyote, a Top 10 Domestic Transportation Management 3PL, for $1.025B at an estimated multiple of 11.9x EBITDA in a depressed market.

“RXO will now have over $7B in gross revenue, making it the third largest Domestic Transportation Management 3PL in the U.S. after C.H. Robinson and J.B. Hunt,” he said. “UPS’s acquisition of Coyote started to unravel after about a year as key Coyote management began its exodus from the big brown machine. Having known both organizations, it is easy to see there was a cultural misalignment. Ultimately, UPS grew tired of its foray into the competitive Domestic Transportation Management 3PL Segment and will now concentrate on its small package oligopoly.”