UPS may be close to acquiring Coyote Logistics

There are deals and then there are really big deals. Should UPS acquire Chicago-based transportation management services provider Coyote Logistics for $1.8 billion as is being reported by Bloomberg and Reuters today, that would clearly be a deal that falls into the latter category.

Upon first glance this deal is pretty major in that Big Brown, one of the largest transportation and logistics services providers there is, would be truly upping the ante in an increasingly crowded brokerage space, specifically truckload brokerage, by acquiring Coyote, a company clearly on the rise with an excellent reputation throughout the industries it serves. Coyote, as noted in a Bloomberg report, is backed by New York-¬based private equity firm Warburg Pincus, which first invested in the company in 2007.

Bloomberg noted that the UPS and Coyote are “in talks,” with a deal potentially “reached as soon as this month.” But it also cautioned “no agreement has been reached and discussions could still fall apart.”

To be certain, there has been no shortage of transportation and logistics deal activity in 2015 to date. Two other examples include: FedEx’ plans to acquire TNT Express for $4.8 billion, which is not a done deal at this point, and another is XPO Logistics bringing Norbert Dentressangle into the fold for $3.53 billion.

A UPS spokesperson declined comment on this development.

A trucking executive whom declined to be identified said that should this move come to fruition, it would somewhat surprise the market in that it represents the meshing of two different company cultures, with UPS being highly process-oriented potentially bringing Coyote, which he described as a “fantastic” company that is becoming a bigger player in the truckload brokerage space and on a fast track.

When asked why this deal makes the most sense for UPS, the executive said that adapting Peak Season surge pricing, which was prevalent in 2014 on both the linehaul and small package side and UPS Freight, the company’s less-than-truckload business, requires a fair amount of purchased transportation, which is an area for Coyote could really benefit UPS.

“Coyote is specifically set up to handle large enterprise accounts and has large customers like Coke, Pepsi, and Wal-mart,” the executive said. “They can handle that purchased transportation well, so if UPS needs to buy $400 million of Purchased Transportation at Peak Season, it can, as purchased transportation is becoming a bigger and bigger part of UPS’s strategy and driving that cost down around Peak Season is a perfect solution.”

Coyote significantly increased its scale and reach, when it reached a merger agreement in March 2014 with Access America Transport, with Access America operating under the Coyote brand. While financial terms of the deal were not disclosed, Coyote and Logistics officials said the combined entity would have a run rate revenue of more than $2 billion, 17 locations in North America, roughly 40,000 contracted carriers, and about 1,750 employees.

“We believe an acquisition of Coyote does make sense for UPS,” wrote Ben Hartford, Robert W. Baird & Co., in a research note. “Coyote has grown rapidly to over $2 billion in annual revenue since its founding in 2006. Coyote’s quality and scale, built around the underpinnings of its strong employee culture and information technology platform, make the asset unique; and in our view, UPS has desire to expand its portfolio into the US domestic truck brokerage space; Coyote would provide a unique and scalable platform. The focus or challenge for UPS would be assimilating Coyote’s youthful, “Millennial” culture with its more traditional and conservative organization.”