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2021’s most transformational deals in trucking

Carriers that altered their identities through M&A over the past year

Deal flow was heavy in the trucking industry during 2021. Most players in the space have seen multiple quarters of record earnings and cash flows. Whether it was looking for a place to put newfound cash to work, adding drivers and equipment in a capacity-constrained market or bolting on a new mode to the transportation offering, many carriers were actively vetting deals and buying assets.

Here’s a recap of a few of the most transformational deals in trucking during 2021.

Knight-Swift goes all in on LTL

Truckload, logistics and intermodal provider Knight-Swift Transportation (NYSE: KNX) can now call itself a less-than-truckload carrier. The company bought two pieces of what will become a national LTL network; AAA Cooper Transportation in a $1.35 billion deal (less than 10x earnings before interest, taxes, depreciation and amortization) and Midwest Motor Express (MME) for $150 million (less than 6x EBITDA).

The transactions give Knight-Swift a regional LTL presence in the Southeast and Midwest (AAA Cooper) as well as the Upper Midwest and Northwest (MME). Both carriers provide national coverage through affiliates.

The deals combined onboarded more than $800 million in annual revenue (excluding fuel surcharges), approximately 100 terminals, 4,200 doors, 3,500 tractors, 8,000 trailers and 5,600 employees, making Knight-Swift’s new LTL division a top-15 player in the more than $40 billion industry.

Collectively, the two carriers will add $167 million in adjusted EBITDA (2021 estimate) and 35 cents in earnings per share during 2022, which won’t move the needle compared to Knight-Swift’s current consensus EPS estimate of $4.87. However, it provides Knight-Swift with another asset-based platform, with favorable industry dynamics compared to TL, from which to grow.

The LTL space has high barriers to entry. It takes considerable capital to acquire a physical terminal network, a fleet and the tech to run it all. There’s also significantly less fragmentation than TL, which presents a healthier rate/yield environment, often leading to better returns.

Knight-Swift kept the current leadership teams in place at both carriers and will run LTL as a separate business. Its newest division is a continuation of its efforts to diversify the product offering. In 2019, its TL division represented 80% of overall revenue. It will only make up 62% of consolidated revenue in 2021 as logistics, intermodal and now LTL account for a bigger share of the company’s $5.5 billion top line.

The biggest LTL acquisition lands in Canada

Not by purchase price but by network size, the biggest LTL acquisition happened early in the year and north of the border.

Canadian trucking and logistics provider TFI International (NYSE: TFII) already had a modest presence in the North American LTL market. However, in January it became one of the biggest players in the space with the $800 million acquisition of UPS Freight (NYSE: UPS), now TForce Freight.

The deal brought in roughly $3 billion in revenue and 197 terminals (more than 10,500 doors) to TFI’s LTL network, which had 38 facilities at the time. The former UPS segment included a fleet of 5,400 tractors and 21,800 trailers providing traditional LTL service along with a version of nonpalletized ground delivery service at LTL pricing.

TFI saw a big opportunity at UPS Freight.

The segment had been operating under bundled services agreements, wherein UPS coupled LTL service at breakeven rates to attract customers to, and maximize profits in, its other offerings. As a stand-alone, UPS Freight was an underperforming segment running an aged fleet with many accounts priced at operating ratios over 100%. That was reflected in the purchase price: less than book value and roughly 5x EBITDA.

That’s where TFI saw the value. The company is repricing the LTL accounts to bring them closer to in line with market pricing and upgrading the fleet. Management has the unit operating near a 90% OR with the hopes of pushing that to 80% over time.

As a serial acquirer, TFI is also confident about cross-sell opportunities within its new customer book as well as contract opportunities with UPS. TFI will leverage the larger terminal network to provide its other services like final-mile delivery.

The transaction also landed TFI a dedicated TL fleet of nearly 1,000 trucks running at a 96% OR. That was rolled into its existing dedicated operations.

XPO locks in on LTL, brokerage with GXO spinoff

The on-again, off-again debate over whether the individual units were worth more than the synergies gained by running a conglomerate was finally decided at XPO Logistics (NYSE: XPO). Breaking up the pieces won out. In August, the European logistics unit, now GXO Logistics (NYSE: GXO), was spun off.

XPO began with a $150 million investment in Express-1 Expedited Solutions from founder Brad Jacobs a decade ago. The goal was to roll up and bolt on complementary transportation and logistics businesses to create a one-stop global powerhouse.

However, the expected synergies from operating multiple modes and services under one roof were never fully achieved. Jacobs’ frustration with a constrained equity valuation, which he believed was tied to a “conglomerate’s discount,” led him to search for other means of unlocking shareholder value even though the company had hit a $14 billion market cap by the time the 2018 freight boom arrived.

Post-breakup, XPO is an asset-based transportation provider and truck brokerage. The company retained the roughly $4 billion LTL business, and management has refocused efforts to improve the segment’s results to rival that of the better operators in the space. Also, XPO was recently reported to be shopping its remaining European transportation and U.S. intermodal assets, further suggesting it’s focused on fixing LTL.

GXO is a pure-play contract logistics provider with highly automated facilities located primarily throughout North America and Europe.

The combined entities have a market cap of nearly $18 billion.

ArcBest becomes a top-15 broker

ArcBest (NASDAQ: ARCB) became a top-15 truck broker overnight with the purchase of Chicago-based MoLo Solutions. With $600 million in revenue expected during 2021, MoLo doubled the size of ArcBest’s brokerage operation. The deal also doubled ArcBest’s carrier network to 70,000.

The $235 million cash purchase price may represent just an installment as the deal is tied to a multiyear earnout, which could equate to an additional $215 million if 100% of the EBITDA targets are met. MoLo was operating breakeven (excluding deal-related expenses) on the operating income and EBITDA lines at the time of the transaction.

The subpar results were said to be tied to costs associated with rapid growth at MoLo. If the 2021 top-line guidance holds, the broker will see revenue more than double from the $274 million it recorded in 2020. MoLo will exit 2022 generating $25 million in adjusted EBITDA and is expected to be accretive to ArcBest’s earnings after a full year of ownership.

The deal checks some boxes for ArcBest. Namely, it puts the company within striking distance of leveling the revenue gap between its asset-light logistics and asset-based trucking divisions. Asset-light revenue, which is not subject to a collective bargaining agreement, now accounts for 44% of total revenue.

Revenue synergies and cross-sell opportunities were also noted as MoLo serves just 500 shippers compared to ArcBest’s 30,000. In addition to accessing ArcBest’s customer book, the deal gives MoLo access to ArcBest’s equipment, which will expand the broker’s drop-trailer, LTL and managed transportation capabilities.

From not making deals to dealmaker

After 65 years of operating under the slogan, “the next acquisition Werner makes will be its first,” Werner Enterprises (WERN: NASDAQ) made not one, but two purchases in 2021 under the leadership of its new chairman.

In July, the transportation and logistics provider announced an 80% equity stake in ECM Transport Group, which holds two regional TL carriers based in Pennsylvania. The $142 million transaction added 500 trucks (a similar number of drivers), 2,000 trailers and more than $100 million in annual revenue to Werner’s network.

At an 80% OR, the ECM deal is expected to add roughly 20 cents per share to Werner’s annual earnings compared to the current 2021 consensus EPS estimate of $3.28. Acquired at an implied 5x EBITDA multiple, Werner was able to inexpensively acquire equipment and drivers in a tight market.

A couple of months later Werner acquired final-mile carrier Nehds Logistics for $64 million, including a small earnout provision. Nehds operates a fleet of more than 400 trucks mostly in the Northeast and Midwest delivering big and bulky goods. It generated past 12 months’ revenue of more than $70 million when the deal closed in late November and is expected to be accretive to 2022 earnings.

Nehds is rebranding and will operate under Werner Final Mile, which received a boost from the transaction as total annual segment revenue is now slightly more than $100 million.

Watch: How will Uber Freight’s newest acquisition help push things forward?

Click for more FreightWaves articles by Todd Maiden.

The FREIGHTWAVES TOP 500 For-Hire Carriers list includes UPS (No. 2), Knight-Swift Transportation (No. 3), XPO Logistics (No. 8), Werner Enterprises (No. 10), ArcBest (No. 26), Forward Air (No. 37), ECM Transport (No. 185) and Midwest Motor Express (No. 206).

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.