By Gillian Tan And Laura Stevens
United Parcel Service Inc. is in talks to buy Coyote Logistics
LLC, a provider of transportation and shipping services, according
to people familiar with the matter.
UPS could pay $1.8 billion or more for the company, according to
one of the people familiar with the talks. It isn't certain the
talks will result in a deal, the people said.
The addition would give UPS a leg up into the fast-growing
freight brokerage business when shippers are switching to slower
and cheaper delivery methods and e-commerce profits haven't been as
robust as expected. U.S. domestic freight brokers, or third-party
logistics companies, grew 20% overall last year, and the business
is expected to reach nearly $200 billion in overall sales by 2018,
according to research firm Armstrong & Associates.
Coyote is "one of the fastest-growing [third-party logistics
providers] in the country," said Evan Armstrong, president of the
research firm.
If UPS does acquire Coyote Logistics, it would follow a string
of deals in the logistics sector including FedEx Corp.'s $1.4
billion acquisition of third-party logistics provider GENCO
Distribution System Inc. this year and FedEx's nearly $5 billion
bid for Netherlands-based TNT Express NV. In addition, XPO
Logistics Inc. said in late April it would buy French
contract-logistics firm Norbert Dentressangle SA in a deal valued
at $3.53 billion.
Chicago-based Coyote Logistics arranges transportation of
freight shipments for more than 12,000 shippers across North
America, according to its website, including large customers such
as brewer Heineken, drink maker Neuro and material science company
Teknor Apex. As a non-asset-based company, it contracts with
outside truckers, acting as a kind of travel agent for
shipments.
While Coyote Logistics is a well-respected freight brokering
company, analysts questioned how the firm would fit with UPS's
business and what synergies it might generate. UPS primarily owns
its own trucks and airplanes, a big difference from Coyote
Logistics' business.
"I'm kind of shocked," said Kevin Sterling, a transportation
analyst with BB&T Capital Markets. "To me, it doesn't seem like
it would fit their model." He added that UPS may feel pressure to
keep up with acquisitions by rivals in the fast-growing space.
Bloomberg first reported news of the talks earlier
Wednesday.
A deal would mean Coyote Logistics, which is backed by
private-equity firm Warburg Pincus LLC, is abandoning an initial
public offering the company had been planning, according to a Wall
Street Journal report in March. Coyote would be the latest
private-equity backed company to do so, which underscores
continuing appetite from buyers for acquisitions to make them
bigger and more efficient.
Private-equity-backed companies have raised just $8.8 billion in
U.S. IPOs so far this year, roughly 40% of the $22.6 billion they
had raised by this time last year, according to data provider
Dealogic.
Warburg Pincus first invested in the company in 2007, a year
after Coyote was founded. Coyote has used that funding to acquire
at least three other firms to expand the services it provides to
shippers and carriers. After acquiring Access America Transport
last year, it said it was on track to generate more than $2 billion
in annual revenue. Jeff Silver, the company's co-founder and chief
executive, has said revenue was $320 million in 2010.
Private-equity firms often prefer to sell companies outright
instead of pursuing IPOs as they are able to fully exit from their
investment rather than selling stock over time.
In the quarter ended March 31, UPS said its supply chain and
freight business's operating profit grew 2% to $151 million, a
small slice of its total $1.67 billion operating profit which stems
primarily from its U.S. domestic package business.
UPS is scheduled to report second-quarter earnings on
Tuesday.
Paul Page contributed to this article
Write to Gillian Tan at gillian.tan@wsj.com and Laura Stevens at
laura.stevens@wsj.com
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