XPO’s acquisition of Pacer International is official
April 01, 2014 - LM Editorial
Following its January announcement that it 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, non asset-based 3PL XPO Logistics said today that the deal has been completed.
XPO said that the deal was financed in a cash and stock transaction for roughly $335 million, with part of the capital coming from cash on hand and some of the net proceeds from the company’s recently announced $414 million public offering of common stock.
As previously reported, with Pacer now part of XPO, XPO is now the third largest provider of North America-based intermodal services (behind J.B. Hunt and Hub Group) as well as the single largest cross-border Mexico provider. Pacer’s contractual arrangements with rail carriers provide access to more than 60,000 miles of network rail routes along with managing roughly 17,000 company-controlled containers and access to more than 100,000 additional big and small boxes. XPO said most of Pacer’s intermodal services will be rebranded as XPO Logistics.
“Our acquisition of Pacer makes us a major player in the fast-growing intermodal sector, and the largest intermodal provider in cross-border Mexico,” said Bradley Jacobs, chairman and chief executive officer of XPO Logistics, in a statement. “We now have a strong platform that fits our customer-centric culture and can support considerably more scale as we continue to grow our multi-modal services to shippers. Over the past few months, every functional area of XPO has been involved in creating a detailed integration plan that we start executing today, along with immediate cross-selling to our combined customer base. We welcome our new employees, customers, rail partners and carriers to XPO.”
Pacer will 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’s Jacobs told LM in a recent interview 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,” he said. “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 substantial cross-selling opportunities throughout the company. And he added that XPO had 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.
Established in 1997, Pacer facilitates approximately 10 percent of all domestic intermodal freight movements, and is the largest provider of intermodal services between the U.S. and Mexico, said XPO, and for the trailing 12 months ended November 30, 2013, Pacer generated total revenue of $1.0 billion.
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 January 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.”
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