CEO uses acquisition strategy to grow companies The key to this acquisition is the 36,000 customers that fill a portfolio gap among its freight brokerage, intermodal and last-mile delivery services.
These are not disjointed services as some 'shorts' would have you believe. XPO has already started to unite their services in Europe and now will do the same in the US.
September 27, 2015 8:00 a.m. UPDATED AN HOUR AGO
By BILL SHEA
New England businessman Bradley Jacobs made nearly 500 acquisitions to create enormous trash hauling and equipment rental companies in the 1980s and '90s.
Since 2011, he's used that same strategy to create a massive transportation and logistics services firm based in Greenwich, Conn., called XPO Logistics Inc.
Jacobs' latest deal as chairman and CEO of XPO is the $3 billion all-cash acquisition of Ann Arbor-based Con-way Inc. announced Sept. 10 and expected to close in October. Con-way will take the XPO Logistics name.
What the deal will immediately do is make XPO the second largest less-than-truckload (LTL) shipper in North America, and fills a portfolio gap among its freight brokerage, intermodal and last-mile delivery services.
A TALE OF TWO TRUCKERS
Con-way Inc. (NYSE: CNW)
2014 revenue: $5.8 billion
2014 net income: $137 million
Employees: 30,100
Locations: 582 in 18 countries
Customers: 36,000
XPO Logistics Inc. (NYSE: XPO)
2014 revenue: $2.3 billion
2014 net income: $63.6 million loss
Employees: 54,000
Locations: 887 in 27 countries
Customers: 16,000
Source: XPO Logistics
LTL is shipping multiple freight loads from different customers under 20,000 pounds on a single truck to a hub where the cargo then is dispatched for delivery.
"XPO Logistics has grown very fast and has become a real force in the industry," said John Taylor, chairman of the supply-chain management department at Wayne State University's School of Business Administration.
Con-way ranked as the sixth-largest U.S. trucking company by revenue last year ($5.8 billion), according to an index published in April by the Journal of Commerce.
In a ranking of less-than-truckload carriers, that part of Con-way's business was second nationally, at $3.6 billion behind only FedEx Freight ($5.6 billion). It also has a full truckload unit and a logistics business.
Con-way makes about 60,000 daily deliveries, Jacobs said, while XPO does about 90,000.
The LTL sector accounts for about $34.5 billion of the $700 billion domestic trucking industry, according to the Journal of Commerce.
Cross-selling the acquired LTL services to current XPO clients is a major reason for the purchase.
"(Con-way's clients) also have transportation or logistics needs across the supply chain we happen to offer at XPO Logistics," he said.
The combination also will give the company the scale and technology to grab more of the growing business shipping online orders too large for parcel carriers such as UPS and FedEx, Jacobs said.
Cutting jobs, costs
XPO will trim a "modest" number of Con-way's 435 staffers in Ann Arbor, Jacobs, 59, said.
"I love the people (in Ann Arbor); they're very bright, dedicated people. The vast majority of them will still be there. That will be the brains of our less-than-truckload business in North America," he said.
Current Con-way President and CEO Douglas Stotlar will become an independent adviser to XPO through the first quarter of 2016.
In announcing the Con-way deal, XPO said it will reduce costs over the year after closing by improving purchasing and supplier management, and finding savings in equipment, fuel, professional services, maintenance, supplies and marketing.
XPO (NYSE: XPO) hopes to use the deal to improve operating profit by up to $210 million in two years.
It ran a $63.6 million net loss on $2.3 billion in 2014 revenue. Wall Street hasn't expressed much concern. One analyst attributes that to XPO being in acquisition mode.
"It takes time to let them come together to realize cost savings," said Satish Jindel, president and lead analyst at Sewickley, Pa.-based SJ Consulting Group Inc.
Jacobs said XPO had $585 million in EDITDA, its measure of financial success, in the past 12 months. He said the addition of Con-way will boost that to $1.1 billion.
Other deals
XPO's other acquisitions also have been eye-popping: Last year, it paid $335 million for Dublin, Ohio-based Pacer International Inc., the third-largest intermodal logistics firm in North America.
A year ago, it bought High Point, N.C.-based logistics firm New Breed Holding Co. for $615 million.
XPO bought French logistics giant Norbert Dentressangle SA for $3.53 billion in April — it offers LTL services in Europe. Then Jacobs launched talks in early summer to acquire Con-way. He had tried to buy its logistics arm two years ago.
The recent acquisitions are fueled, in part, by a $700 million equity investment in XPO in September 2014 by the Toronto-based Ontario Teachers' Pension Plan, Ottawa-based Public Sector Pension Investment Board, and Singapore-based GIC Private Ltd. The deal gives them a 21 percent stake in the company, the Wall Street Journal reported, and leaves Jacobs' Jacobs Private Equity LLC with a 24 percent share.
XPO used New York City-based J.P. Morgan Chase and Morgan Stanley as financial advisers on the Con-way deal, while Wachtell, Lipton, Rosen & Katz was legal adviser.
Morgan Stanley is providing up to $2 billion in financing, and XPO said it has $1.2 billion in cash and a $415 million credit facility available.
New York City-based Citigroup Inc. was Con-way's financial adviser, and Chicago-based Sidley Austin LLP was legal adviser.
Company histories
Con-way traces its roots to the 1929 founding of Portland, Ore.-based Consolidated Truck Lines. After acquisitions and name changes, it took its current name in 2006.
XPO was created in 2011 after Jacobs invested $150 million in a Michigan third-party logistics services firm, St. Joseph-based Express-1 Expedited Solutions Inc., with the intent of using it as the foundation of a much larger shipping company.
A few months later, Jacobs bought Express-1 and began targeting other acquisitions.
Jacobs built his fortune through oil trading in the 1980s, and later by creating Connecticut-based United Waste Systems Inc. in 1989. After acquiring more than 200 trash businesses, he sold United in 1997 for $1.7 billion to what is now Houston-based Waste Management Inc.
He used that money to co-found industrial equipment rental firm United Rentals Inc. in 1997, and employed the same strategy of expanding via acquisitions.
Bill Shea: (313) 446-1626. Twitter: @Bill_Shea19
https://www.crainsdetroit.com/article/20150927/NEWS/309279991/ceo-uses-acquisition-strategy-to-grow-companies