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Consolidation Among Top 50 3PLs Grows in Past Two Years

Nov. 11, 2015
Leading the way in large deals is XPO Logistics which has acquired Con-way, New Breed Logistics, Norbert Dentressangle and UX Specialized Logistics.

Over the past two years the M&A activity in the 3PL market has been brisk according to Armstrong & Associates, Inc. is a supply chain management market research firm.

Leading the way in large deals is XPO Logistics which has acquired Con-way, New Breed Logistics, Norbert Dentressangle and UX Specialized Logistics.

In October, XPO Logistics acquired Con-way for $3 billion. The deal included Con-way Freight, Menlo Logistics, Con-way Truckload and Con-way Multimodal.

These acquisitions have made XPO Logistics, the 7th largest global 3PL provider behind DSV (with the pending UTi Worldwide acquisition), with revenues of $8 billion ( not including the Con-way trucking operations.)

XPO has made 2015 the largest 3PL M&A year for deals over $100 million at 11, since Armstrong & Associates began tracking activity in 1999.

Looking at specifics of the acquisition, Menlo Logistics had 2014 gross revenue of $1.7 billion, net revenue of $748 million, and manages a warehousing network of 138 warehouses totaling 21 million square feet.

“Menlow has significantly grown its China and Southeast Asia network, which will be a nice addition for XPO,”says Armstrong & Associates. “The company has also done very well in expanding its European operations. Both regions have added significant pieces of business with marquee customers such as Amazon and Triumph in Europe, and Puma and Starbucks in Asia.”

The research firm points out that Menlo has a growing domestic transportation management (DTM) 3PL market segment operation. Con-way Multimodal is a top 35 DTM/freight broker, and Menlo is a prime contractor for the U.S. Transportation Command’s Defense Transportation Coordination Initiative and the lead logistics provider for truck manufacturer Navistar. Menlo is also a key 3PL provider for BP, Hewlett-Packard, General Motors, and Dow.

Looking at the other XPO deals, the New Breed deal which closed last September had a multiple of 8 times earnings before interest, tax, depreciation and amortization (EBITDA) which has gotten to be in the acceptable range for a value-added warehousing and distribution (VAWD) 3PL provider. This deal reflects a successful private equity venture for previous owner Warburg Pincus. Warburg made an investment in New Breed in 2005, held it for 10 years and sold it to XPO for a high multiple.

The Norbert Dentressangle purchase for $3.5 billion, will help XPO in both Europe and the US. since  Dentressangle has large European operations and had recently expanded in the U.S. by acquiring Jacobson Companies.

Armstrong & Armstrong offer commentary on other M&A activity.

Denmark based DSV announced, in October, the pending acquisition of UTi Worldwide. UTi Worldwide was founded in 1995 and has over 21,000 employees. The $1.35 billion acquisition is expected to increase DSV’s annual revenue nearly 50%. In 2014, DSV increased gross revenue to just under $8.7 billion (an increase of 6.4% over 2013 figures). This acquisition will place DSV just below competitor C.H. Robinson in terms of size and add further distance between itself and competitors such as CEVA Logistics, SDV (Bolloré Group), XPO Logistics, and Panalpina.

UPS acquired Coyote Logistics in August for $1.8 billion in a combination of debt and cash. The purchase price makes the estimated multiple a lofty 15-18 times EBITDA. Both companies are top 50 global 3PL providers. UPS SCS is a very solid value-added warehousing and distribution 3PL provider with a nice integrated small package and international transportation management offering. With the addition of Coyote, it would have significant non-asset based domestic transportation management capabilities in the U.S. and UPS’s operations will benefit from the additional contract truckload capacity managed by Coyote.

Kuehne + Nagel’s purchase of ReTrans in August indicates the high level of interest by major companies in being part of the expanding DTM segment. The Americas have been Kuehne + Nagel’s bright spot growth area for 2014-2015. Some business segments, such as Overland in Europe, have done poorly. The A&A estimated purchase price of $180 million is appropriate given non-asset DTM multiples of 10 to 11 times EBITDA and growth potential.

Another large, U.S./Europe based acquisition is FedEx's pending purchase of TNT Express. While not a true 3PL purchase, this deal has significant impact because of the dramatic expansion FedEx will be making in Europe where TNT is still a major package player despite a rash of management missteps over the last decade. European regulators need to be realists and realize that TNT has run its course and approve this deal.

Closer to home, FedEx purchased GENCO, a high quality VAWD 3PL provider. The multiple was a lofty 9.8 times EBITDA. This move gives FedEx a major expansion into VAWD making it more competitive on a combined service basis. It provides a strong competitive answer to UPS SCS and DHL Supply Chain.

Echo Global Logistics continued to expand through acquisitions. It made another small, bolt-on acquisition – Xpress Solutions. Then it bought fellow Chicago freight broker, Command Transportation. Command’s owner and CEO, Paul Loeb, will remain as a key player in the combined operation. Loeb was part of American Backhaulers with Jeff Silver, CEO of Coyote Logistics. Loeb and Silver left when C.H. Robinson acquired American Backhaulers in 1999. The multiple was 10.5 times EBIT. Command had revenues of $561 million with an EBITDA of $37 million. The multiple was 11.4 times EBITDA. Command’s operations were more traditional truckload brokerage providing significant synergies between the two operations.

While the last year was a time of cashing out for private equity investors, Greenbriar Equity Group LLC, the major owner of Transplace, made a large investment in transportation manager SEKO Logistics. SEKO has been around for over 20 years but has never really been able to become a mainstream 3PL provider. Greenbriar has a history of getting challenged 3PL providers oriented -- expect to hear more from SEKO.

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