By Laura Stevens 

United Parcel Service Inc. said it would buy transportation and shipping services provider Coyote Logistics LLC for $1.8 billion, an acquisition that will add in-house technology to fill empty space on existing trucks.

UPS, which is acquiring Coyote Logistics from private-equity firm Warburg Pincus LLC, said Friday that the acquisition should create $100 million to $150 million in annual operating synergies and start adding to earnings in 2016. Coyote Logistics will operate as a separate subsidiary and keep its name.

The move will add new service offerings to UPS's portfolio in the fast-growing freight brokerage business at a time when the delivery giant has been striving to maintain its profitability and reduce costs after tough back-to-back holiday seasons and a movement among shippers toward slower and cheaper delivery methods.

Revenue for U.S. third-party logistics providers, which provide services ranging from booking truck drivers to managing warehouses, rose 7.4% to $157.2 billion last year, faster than the 2.8% growth in logistics spending overall, according to research firm Armstrong Associates.

Coyote Logistics reported annual revenue of $2.1 billion in 2014 and is growing by double digits each year, according to UPS.

Coyote Logistics and UPS have been working together since 2012 during the delivery giant's all-important peak holiday seasons, UPS Chief Commercial Officer Alan Gershenhorn said in an interview with The Wall Street Journal. Coyote Logistics has been helping UPS to broker extra space for the holidays, he said.

"The chemistry between the two companies has just been outstanding," Mr. Gershenhorn said.

One of the biggest additions to UPS's portfolio will be Coyote Logistics's technology, which allows its customers to book and sell empty space on existing truck runs, Mr. Gershenhorn said. UPS has about seven million empty trip legs annually, and filling that space will boost revenue.

"If Coyote gets a match that fits our system and that meets the needs of the customer, then UPS will move that," he said. UPS also will offer its customers the ability to use the technology to fill their own empty trucks.

Some analysts have questioned the compatibility of Chicago-based Coyote Logistics and UPS. As a freight broker, Coyote Logistics acts as a kind of travel agent for freight and doesn't own its own trucks. UPS primarily owns its own fleet, although it has a small in-house brokerage service already.

Analysts also say there is danger of a culture clash. Coyote, launched in 2006, has a startup culture, with a young employee base hired in and trained from scratch. At more than a century old, UPS has more of a militaristic culture built from drivers and package sorters who work their way up the chain.

UPS has had a troubled history with some of its acquisitions, in part because UPS's very distinct culture that hasn't always blended with some of the freewheeling operations at companies they have acquired, said Daniel Herron, a former logistics industry executive who now works as a consultant in mergers and acquisitions. "The integration in these acquisitions is the difficult part," he said.

Mr. Gershenhorn said UPS will keep Coyote Logistics as a separate subsidiary, fully connected but not fully integrated.

"There's not a whole lot of integration costs. We're going to be able to get up and running very quickly," he said. "We're not military at UPS. We're structured and cost efficient. I think the cultures are going to mesh great."

On Tuesday, UPS reported strong earnings as income nearly tripled to $1.2 billion. The company's supply chain and freight operation segment's revenues fell 4.5% to $2.2 billion, but operating profits increased 18% over the prior year when excluding special items. The division is currently UPS's smallest, contributing about 17% of total revenue.

The Coyote Logistics deal is expected to close within 30 days and will be financed with cash and new and existing debt arrangements, UPS said.

The acquisition is one in a string of recent deals in the transportation industry, including FedEx Corp.'s nearly $5 billion bid to acquire Dutch parcel shipper TNT Express NV and XPO Logistics Inc.'s purchase of French contract-logistics firm Norbert Dentressangle SA in a deal valued at $3.53 billion.

Write to Laura Stevens at laura.stevens@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

United Parcel Service (NYSE:UPS)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more United Parcel Service Charts.
United Parcel Service (NYSE:UPS)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more United Parcel Service Charts.