The word that keeps coming up in discussions about Uber Freight’s (NYSE: UBER) acquisition of logistics platform provider Transplace is “customer.”
Transplace, as a provider of managed transportation services through its transportation management systems, is viewed as a “shipper down” operation, providing services to companies looking to move freight to market and having decided to turn over that task to a company like Transplace.
Uber Freight, in contrast, is seen as a company that comes to market with a platform primarily aimed at carriers looking to more efficiently find trucks that can move freight.
FreightWaves’ President George Abernathy discusses the acquisition with Kevin Hill on FreightWaves NOW
Combining the two, according to a presentation by Uber Freight, allows for “customer-first solutions.”
Merging the companies in the $2.25 billion acquisition by Uber Freight announced Thursday morning is considered unusual in the logistics field, where the two sides of the normal divide do interact on platforms but where those platforms are mostly targeted at “either/or.”
The seller of Transplace is TPG Capital, a private equity firm.
Frank McGuigan, the CEO of Transplace, said Transplace received interest in being acquired through all of 2020, and “decided to listen to offers in the first half of this year.”
With three different PE companies already having been owners, getting flipped to a fourth had limited appeal, he said. “We were at a point where we need to do something transformative,” he said.
Ryan Schreiber, the director of engagement with the transportation technology consulting firm CarrierDirect, said the motivations of the two companies in the deal were clear.
For Uber Freight, acquiring Transplace provides a foothold into securing business that is now moved as managed transportation. “It’s an entirely new line of business that is more stable and more transparent,” Schreiber said. He said Uber Freight management clearly believes that they can apply its digital brokerage technology to a “relatively high-margin business.” Uber Freight’s model does not easily lend itself to securing managed freight into its system; Schreiber said that can change with the acquisition of Transplace, referring to “all that spot freight.”
For Transplace, Schreiber said, the ability to merge its technology with Uber Freight’s technology is key. Uber Freight’s technology has some advantages over that at Transplace, and “getting in bed” with Uber Freight provides access to that technology, along with the possibility of injecting more capital into technology development.
This is not a small deal. Beyond the multibillion-dollar price, Uber Freight’s presentation on the deal provided to investors shows the size of Transplace. While the presentation did not disclose Transplace’s revenue specifically, it did say it has had a 15% compound annual revenue growth rate (CAGR) since 2017. Its earnings before interest, taxes, depreciation and amortization has grown to an annual run rate of more than $100 million in the first quarter from $54 million for all of 2017.
If it’s rounded down to $100 million, the sales price marks a 22.5 times multiple to EBITDA for Transplace, an extremely strong number.
McGuigan, the CEO of Transplace, referred to Uber Freight’s technology as a key reason to sell the company. He cited its “deep data science capability.” And along the theme of customer focus, he mentioned Uber Freight’s “strong national commercial presence.”
“To me, all those are complementary to what we’re trying to do, which is to build an incredible shipper platform to the benefit of the entire community,” McGuigan said in an interview with FreightWaves. “Uber Freight is doing the same thing. It’s just that they’re doing it from the carrier up and we’re doing it from shipper down.”
McGuigan was asked whether the integration with Uber Freight might mean a cutback in the human brokerage presence at Transplace, replaced by the algorithms that drive Uber Freight. His response: “No way.”
“Our technology will be integrated and we will take the best of both,” McGuigan said. “We are both double-digit growers, and we are hiring. We need more people, not less people.”
Uber Freight has had a significant run of transformation in the past several months. Not long after there had been discussion on whether Uber Freight fit in the broader Uber strategic division, the company answered that question with an emphatic “yes” by taking in a $500 million investment from Greenbriar Partners. At the time, Lior Ron, the head of Uber Freight, said, “We wanted customers to understand that we’re here for the long haul.”
But that didn’t end the talk of whether Uber Freight fit; it was raised on an earnings call soon after.
Ron also referred to the customer-shipper combination when asked about the acquisition. “Shippers need solutions more than ever before,” he told FreightWaves. “What you need to answer the challenge is a new combination, taking best-in-call supply chain optimization from Uber Freight and a best-of-shipper solution from Transplace. When you combine the two, you get next-level optimization, next-level resilience and next-level visibility.”
In the Uber Freight presentation, the company said its revenue had risen to an annual run rate of $1.2 billion in the first quarter from $67 million for all of 2017, a 106% CAGR. EBITDA — which still remains in the red — was negative 60% of revenue in 2007. In the first quarter it was negative 10%.
In the presentation, Uber Freight said it expects adjusted EBITDA at Uber Freight would be positive by the fourth quarter of next year, propelled in part by the Transplace acquisition.
“Significant additional net run-rate synergies of $40 million [are] expected to be realized 12-24 months from transaction close,” the presentation said.
McGuigan said he expects the deal to close by the end of the year.
FreightWaves’ President George Abernathy speaks on FreightWaves NOW about the acquistion.