Three large institutional investors make $700 commitment to XPO Logistics

Non asset-based 3PL XPO Logistics said this week that three global blue chip institutions––PSP Investments, Singapore’s sovereign wealth fund called GIC, and the Ontario Teachers’ Pension Plan–– have invested a cumulative $700 million into XPO, which company officials said will be used to accelerate its growth strategy and allocated mainly for unspecified acquisitions.

XPO said this transaction is expected to be completed by September 17.

XPO Chairman and CEO Brad Jacobs told LM that as a result of this new capital infusion, XPO will be able to increase its long-term financial targets and that the three investors each have sterling reputations, with GIC the fourth largest sovereign wealth fund in the world, and PSP, formally known as the Public Sector Pension Investment Board, manages more than $90 billion of pension planning funds for various civil servants in Canada, and the Ontario Teachers’ Pension plan being one of the largest pension plans in Canada with more than $140 billion in assets and manages the assets of roughly 300,000 teachers.

“This is a major strategic investment and a clear vote of confidence in our business plan by some of the most highly regarded investors in the world,” said Jacobs. “And with the benefit of this additional $700 million we now have raised our 2017 financial targets to roughly $9 billion of revenue and $575 million of EBITDA, up from previous targets of $7.5 billion in revenue and $425 million of EBITDA.”

With this capital primarily allocated for acquisitions, Jacobs said that the acquisition pipeline is very active at the moment, and XPO is focusing on companies in existing verticals that are strategically compelling and can be scaled up.

Since its inception in September 2011, XPO has made 13 acquisitions, including:  Pacer International, a freight transportation and logistics services provider and the third largest provider of intermodal services in North America; New Breed Logistics, a non asset-based 3PL focusing on contract logistics services, and 3PD, the largest non-asset, third party provider of heavy goods, last-mile logistics in North America, among others.

What’s more, since that time XPO has grown from $177 million in revenue to a company closing in on a $3 billion annual revenue run rate and $150 million in EBITDA, while establishing 23 cold starts (establishing new operations in new cities).

As for potential acquisitions between now and the end of 2014, Jacobs said that he is optimistic more deals can be made but that is hard to determine as deals can occur in fits and starts and can come together quickly or, conversely, take longer than expected.

“It can be hard to predict the timing, but we certainly are having a lot of discussions with a number of attractive acquisition candidates in a number of different verticals, including truck brokerage, intermodal, expedite, and last mile as well,” he said.

Stifel Nicolaus analyst John Larkin wrote in a research note that XPO has rounded out its service offerings over the last year, and has strayed away, to some degree, from freight brokerage.

“Although we have no knowledge of pending deals, we would be surprised if the company does not make a big move in freight brokerage, perhaps acquiring one of the large, private players in the space,” he wrote. “The company has also indicated previously that it is looking to add more scale in the last-mile delivery market.”

Market conditions: Jacobs said that truckload capacity is not as tight as it was earlier in the year, when it was still impacted by difficult weather conditions, albeit it remains tight still, he noted.
Regardless of region, he said that the truck driver shortage is the number one topic of conversation, with no abatement of that for the foreseeable future. In fact, he said that situation is likely to be exacerbated in the future.

As for the economy, he said that things appear to be slowly picking up as there is more freight and less capacity, with that imbalance creating a great situation for brokers that can add value to the supply chain by securing the right capacity for shippers.