XPO Logistics dreams big

From the October 2016 issue.

US corporation XPO Logistics has dominated the business headlines in 2015, with billions spent and a dozen acquisitions completed as part of CEO Bradley Jacobs’ aggressive growth strategy.

With cheap money readily available and ample liquidity built up in the US, analysts from around the world predict the mergers and acquisitions market to reach unforeseen heights in 2015.

According to Merrill Datasite, some 7,900 deals worth $2.5 trillion (€2.2 trillion) have been announced globally between January and August – marking them the highest valued first eight months to start a year since 2007, when there were 10,836 deals worth $2.7 trillion (€2.4 trillion).

The transport and logistics industry has been especially buoyant over the past 12 months or so, with a suite of billion-euro ‘megadeals’ setting the stage for an international consolidation wave.

Two major announcements to capture attention have been the Japan Post acquisition of Australian company Toll Holdings in May for an alleged €4.7billion, as well as FedEx’s €5.5 billion bid for TNT Express in April. But the name stealing the limelight has been a less prominent one: Cincinnati-based XPO Logistics.

The company’s most recent spending spree began in June with the €3.24 billion take-over of French transport icon Norbert Dentressangle, quickly followed with by a further €2.6 billion deal to acquire Michigan-based Con-Way in September, which made it the second largest less-than-truckload (LTL) provider in North America overnight. Both deals are said to be part of an aggressive consolidation strategy that has seen the company scoop up over a dozen businesses in a handful of years, totalling approximately €8 billion to date (see timeline below).

XPO Logistics CEO, Bradley Jacobs, kicked off the growth spurt with the purchase of Canadian truck broker Kelron Logistics in August 2012, less than 12 months after his instalment as Chief Executive in late 2011. Ever since, the ambitious CEO has made no secret of his aim to reach $23 billion (€20 billion) in annual revenue by 2019, using the same consolidation strategy that has already found him success in the waste and rental industries, in which he shaped his public profile before entering the trucking industry.

With more than 250 acquisitions in eight years, Jacobs grew his waste business United Waste from an initial investment of US$20 million into a $2 billion company, and followed it up by investing $50 million into United Rentals, turning it into a corporation worth around US$10.6 billion. Now, Jacobs has his eyes firmly set on logistics, putting US$150 million from his own pocket into XPO when he joined the company in 2011.

In a recent interview with US magazine Transport Topics, Jacobs pointed out that he has targeted the US$3 trillion global logistics industry because it is still “fragmented and ripe for consolidation”, adding that he believes logistics will follow in the path of other industries to be dominated by two or three ‘big players’ in the long run.

By focusing on fast-growing subsectors such as last mile, near shoring, expedited freight and brokerage, Jacobs said he is determined to make XPO one of those big players, albeit not through organic growth, but instead by acquiring existing businesses around the globe.

In line with XPO’s reputation as a lean and asset-light business, he told Transport Topics that amassing physical assets like trucks and trailers is still “not our base plan”, but experts continue to point out the corporation’s growing asset strength and its impact on the wider supply chain.

All up, XPO’s global ground transportation network now sits at about 19,000 company-owned prime movers and 46,000 owned trailers, with another 10,000 or so trucks contracted through independent owner operators and access to more than 50,000 independent carriers on top of that.

“By relying less on third party carriers and building an asset base of its own, the deal helps XPO reduce the purchased cost of a big chunk of its third party logistics (3PL) transportation services, making it far more industry competitive,” US business journalist Paul Martyn explains. “More capacity at less cost/higher margins will do that for you every time.”

Martyn argues that the acquisition of the Con-way and Dentressangle fleets means that XPO now owns “the most critical transportation segments sought by most shippers”, effectively making itself more profitable on its existing business and more resilient to future market uncertainties.

Yet, physical assets aren’t all that has transferred over to XPO, with a spate of clients from Con-Way and Norbert Dentressangle announcing that they will change over to XPO – including the UK poultry giant Bernard Matthews, the world-famous Le Tour De France and supermarket chain Carrefour Espana, which has moved its entire e-commerce offering to XPO Logistics.

However, with so many different companies all being rolled up into one, the question of integration and culture has been raised, with Jack Atkins, an Arkansas-based analyst at investment bank Stephens Inc, among those who consider corporate alignment a concern. “As you look to the history of potential roll-ups in third-party logistics land, it’s the boulevard of broken dreams,” he told Bloomberg. “Roll-ups in this space have not gone well, and what long-term investors have been left with at the end of the day are businesses that have operations that don’t fit together in a cohesive strategy.”

Ever so buoyant, XPO chief Jacobs has elected to disregard the warning, saying he created a system to avoid pitfalls in consolidating companies by managing them in a “highly integrated” way. Part of this involves a lean organisational chart, he says, with executives from both Norbert Dentressangle and Con-Way having to make way: Chairman and Chief Executive, Hervé Montjotin resigned three months after the Norbert Dentressangle acquisition and Con-Way’s President and Chief Executive, Douglas Stotlar, now in an advisory role, will likely drop out after the first quarter of 2016.

With the old team slowly phasing out, XPO Logistics continues to pile up assets and contracts from each acquisition as the ambitious CEO aims to step closer to his $23 billion goal. And while the Con-Way coup likely marks the company’s last ‘megadeal’ to dominate headlines in the short term, Jacobs says he hasn’t ruled out smaller purchases in the coming months to continue his aggressive consolidation strategy and solidify XPO as a ‘big player’ on the global stage.

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