XPO Logistics to acquire Pacer International, will become third-largest U.S. intermodal provider
Non asset-based 3PL XPO Logistics said today it has entered into a definitive agreement to acquire Dublin, Ohio-based Pacer International, a freight transportation and logistics services provider and the third largest provider of intermodal services in North America.
The total purchase price of the acquisition, which XPO said is expected to close in the second quarter, is $335 million, with Pacer stockholders receiving $6.00 in cash and $3.00 of XPO common stock for each share of Pacer common stock for a total market value of $335 million and total enterprise value of $296 million. The total transaction value is roughly 11.3 times Pacer’s 2013 consensus EBITDA of $26.1 million and 9.1 times consensus 2014 EBITDA of $32.6 million. When this deal is complete, XPO said its annual revenue run rate will increase by 100 percent to $2 billion.
This is XPO’s eleventh acquisition in the last two years.
Pacer will become a new XPO unit and continue to be led by its CEO Daniel Avramovich, coupled with substantially all of Pacer’s executives staying on board, too, XPO said. And the company will remain in its operations center in Dublin, Ohio.
XPO Chairman and CEO Brad Jacobs told LM that there were multiple reasons as to why bringing Pacer into the fold made sense for XPO.
“The intermodal sector is one of the fastest growing areas of transportation, and Pacer is the third largest provider of intermodal services in North America (behind J.B. Hunt and Hub Group),” he said. “And Pacer is the largest provider of intermodal cross-border services into Mexico, which is growing fast, due to near-shoring manufacturing in Mexico, with more than one-third of its business focused on cross-border Mexico operations.”
What’s more, Jacobs explained that the combination of Pacer and XPO will create substantially cross-selling opportunities throughout the company. And he added that XPO has been interested in acquiring Pacer since Jacobs and his Jacobs Private Equity LLC, and a group of investors made a $150 million commitment into Express-1 Expedited Solutions, a non-asset-based third party logistics transportation provider, and subsequently re-named the company XPO Logistics, first entered the business in 2011.
The company’s strategy has been to offer customers what they want and need and what their supply chain demands, he explained. And all customers, especially the larger ones, are working hard at optimizing their supply chain to reduce costs.
“We have not met a customer yet who wants to increase their transportation spend; everyone wants to try to cut costs,” he said. “For shipments moving more than 500-to-600 miles, intermodal can often save 15-to-20 percent of total costs. Intermodal was something we knew we wanted to get into since we started in 2011. We couldn’t figure out a way to get into it, and when Pacer came on the market a few months ago we jumped all over it and pursued it very doggedly…and dropped nearly everything to pursue it.”
Pacer has roughly 950 employees and coupled with XPO’s roughly 2,200-plus, XPO will now have more than 3,200 employees, and Pacer’s 30 locations and XPO’s 94 bring it to a total of 124 locations. For customers, XPO has 9,500 and Pacer has about 2,500 customers.
Jacobs said Pacer mainly has large customers, including manufacturers and consumer packaged goods companies, and retailers—all companies that are moving large quantities long distances. XPO, he noted, also has relationships with large shippers but also has a big presence with small- and medium-sized shippers, too.
“The big customers are by and large aware of intermodal and are either doing it or studying it seriously, and the small- and mid-size ones are not doing it as much although they should be. Their supply chains are between 500 and 1,000 miles and they are doing it by truck; it makes sense to use intermodal when you get up to those long distances.”
What’s more, he said that larger shippers are winnowing down their capacity providers and want to work with a smaller number of asset-based and non asset- based providers and carriers that are larger and have a wider range of offerings and can solve total supply chain issues and move product in the most efficient way from point A to point B with the most efficient mode.
To that point, he said XPO has positioned itself in recent years through acquisition as the largest provider of last-mile, the largest manager of expedited movements in the U.S., the fourth largest truck broker, and now the third largest intermodal provider, which makes it very attractive to shippers.
This was echoed by Stifel Nicolaus analyst John Larkin in a research note.
“By moving into the last mile delivery market, the Transportation Management Systems arena, and now the intermodal market, the company has wisely, in our view, deemphasized growth in the less defensible truck brokerage market which in recent years has become more commoditized,” he wrote. “We commend XPO management for this crafty change in strategic course which should more easily allow for the achievement of the company’s long term financial objectives.”
About the AuthorJeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman
Subscribe to Logistics Management Magazine!Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your entire logistics operation.
Start your FREE subscription today!
2016 State of Logistics: Third-party logistics 2016 State of Logistics: Ocean freight View More From this Issue