What is Coyote Logistics and why is it worth $1.8 billion?
After suffering through consecutively disappointing holiday seasons, the world’s largest delivery company is looking to improve its adaptability and fill its trucks more efficiently.
United Parcel Service (UPS) announced Friday it would buy Coyote Logistics, a transportation and shipping provider that will help the company untangle the complex logistical web accompanying each Christmas season.
The $1.8 billion deal will be financed in cash and debt arrangements, and is expected to close within 30 days, said UPS and Coyote in a joint statement.
The nine-year-old logistical firm, which is based in Chicago and owned by the private equity firm Warburg Pincus, says it connects 12,000 customers to a network of more than 35,000 trucking operators across North America.
Coyote Logistics has also reported rapid revenue growth in recent quarters, last year posting $2.1 billion in sales. These figures are growing by double digits each year, according to The Wall Street Journal.
Due to widespread freight train bottlenecks, thanks in large part to the need to transport cheap American oil, demand for trucks has surged, CNBC reports.
Announcement of the acquisition comes at the same time financial analysts have given Coyote’s competitor, XPO Logistics, strong “buy” recommendations, according to Marketbeat.
“The brokered full-truckload freight segment is a high-growth market and we expect it will continue to outpace other transportation segments,” said UPS Chief Executive Officer David Abney in a statement.
Coyote’s addition to UPS, where it will operate as a separate subsidiary under the same name, will provide software solutions to help determine how to utilize their fleets more efficiently, said the statement.
Mr. Abney said the acquisition is projected to begin adding to UPS’s earnings in 2016, and should create $100 to $150 million in annual operating synergies, “from backhaul utilization, purchased transportation and cross-selling opportunities.”
The deal comes just as the shipping giant gears up for this year’s holiday season, a time period that has caused UPS problems in the recent past.
In 2013, UPS failed to deliver countless packages in time for Christmas due to inclement weather and an increase in last-minute orders, reported The Christian Science Monitor. “For some Americans, it wasn’t so much a white Christmas as a ‘wait’ Christmas,” wrote Mark Trumbull.
Last year, the company’s performance improved as it decided to err on the safe side, nearly doubling its seasonal hiring and spending around $500 million on provisional measures intended to expedite sorting and routing. But Fortune reported it was an expensive move that greatly proved fruitless, as the country remained storm-free and had no shipping delays.
Perhaps this year, the company can hit the sweet spot. UPS announced in February it would introduce surge pricing for last-minute orders during the holidays, what the company calls “peak season,” reported the Monitor.
Coyote has also helped UPS during past holiday seasons by hiring third-party shippers, according to USA Today.
The logistics team “played a growing role in supporting UPS peak operations over the past few years,” said UPS. “And the company expects to leverage Coyote’s carrier network even further for this purpose in the future.”
