XPO’s acquisition of 3PD is made official

Following its mid-July announcement in which it said it planned to acquire 3PD Inc., the largest non-asset, third party provider of heavy goods, last-mile logistics in North America, non asset-based 3PL XPO Logistics said this week that the acquisition has officially been completed.

XPO officials said the company financed the acquisition and related fees and expenses with the net proceeds of its recent $220.5 million public offering of common stock, together with cash on hand.

“Our acquisition of 3PD gives us immediate leadership in the heavy goods, last-mile space – an underpenetrated market for logistics with an exciting growth trajectory,” said XPO Chairman and CEO, in a statement. “We welcome 3PD’s customers, carriers and employees, all of whom will benefit from the combined resources of our larger organization. We’re very bullish about the opportunities embedded in each of our five avenues of growth: optimizing our existing operations, cold-starts, acquisitions, our strategic and national accounts program, and now last-mile. We’re right on plan for our long-term goal of creating a world-class 3PL with several billion dollars of revenue and several hundred million dollars of EBITDA.”

This transaction represents the largest financial outlay made by XPO Jacobs and his firm Jacobs Private Equity LLC and a group of investors made a $150 million commitment into Express-1 Expedited Solutions, a non-asset-based third party logistics transportation provider, and subsequently re-named the company XPO Logistics, in mid-2011.

Based in Marietta, Ga., 3PD serves retail shippers through its last-mile delivery services provided by the 900 carriers it has established relationships with. The company was established in 2001. XPO said that it facilitates roughly more than double the amount of deliveries as its closest competitor by matching up small- and mid-sized shippers to carriers on a transactional basis, coupled with a $17 million investment into developing its proprietary technology, which focuses on customer satisfaction metrics, and process management services, in order to provide more miles to carriers with higher customer satisfaction ratings.

“3PD is the largest provider of heavy goods, last-mile logistics in North America,” said Jacobs in a July interview. “They are a non-asset 3PL like we are and matching shippers with carriers to get freight moved just like XPO does. It is a major milestone in our strategy and accelerates our growth rate and is a strong strategic fit.”

In XPO’s base business, Jacobs said XPO moves a lot of freight from factories and retailers to distribution centers and stores, with 3PD picking up where XPO leaves off.

This is where he said the last-mile service comes into play, with 3PD moving freight from distribution centers to stores and into homes, businesses, and job sites through the final mile to the end user

“Having this full supply chain capability from cradle to grave differentiates us to large retailers from our competitors,” said Jacobs. “Like XPO, 3PD does not own any trucks, so we can get a higher return on capital by utilizing relationships with a network of carriers and so does 3PD through its 900 carrier relationships. And they facilitate 4.5 million deliveries per year. They are the clear leader in their space and are hungry for more growth. It is a company with tremendous momentum.”

The last-mile delivery market with 3PD is highly active in is a $12 billion annual market, according to Jacobs. And he said about $3.5 billion of that is outsourced to 3PLs, with that outsourcing figure rising due to increased e-commerce activity.

What’s more, he said that 3PD has about 13 percent market share in this business, with Exel its next closest competitor at about 8 percent and J.B. Hunt and CEVA Logistics each at about 5 percent, respectively.

3PD’s management team, led by CEO Karl Meyer and CFO Randy Meyer, and the company’s entire management team has agreed to join XPO and continue to lead 3PD company operations. 

“They have put together a team that has decades of experience in last-mile logistics,” said Jacobs. “And they are looking forward to growing fast with XPO.”

Prior to making this deal, Jacobs said XPO provided last-mile delivery services through partnering with 3PLs and 3PD.

Slightly past the mid-year point of 2013, Jacobs said XPO is currently at a revenue run rate north of $500 million, with a goal to be EBITDA-positive by the fourth quarter and a revenue run rate of about $1 billion.

“We have a bunch of acquisitions in the pipeline and [after the 3PD deal] will be challenged to do any of the large ones now, but we still have a bunch of small ones that are moving along and are highly scalable that we are actively looking at,” said Jacobs.

“Last mile delivery was not initially envisioned as a vertical at XPO, but we believe that most of the big truck brokers (TQL, Transplace, Coyote, Freightquote.com, Command Transportation, TTS, and others) were either not interested in selling to XPO at XPO’s price or were not interested in selling to XPO at any price,” wrote Stifel Nicolaus analyst John Larkin in a research note. “So the company opportunistically modified its focus from truck brokers to a last-mile-delivery company—since 3PD was for sale, was asset-light, and operates in an area offering tremendous growth as e-commerce continues to capture retail market share.”