XPO Agrees to Buy 3PD for $365 Million, Its Eighth Acquisition in 18 Months

This story appears in the July 22 print edition of Transport Topics.

Rapidly growing XPO Logistics Inc. agreed to buy 3PD Inc., a third-party logistics company, for about $365 million in the most expensive publicly disclosed transport-sector transaction this year.

The deal, if approved, would be Greenwich, Conn.-based XPO’s largest acquisition — and the eighth in the 18 months since investor Bradley Jacobs bought Express-1 Expedited Solutions Inc., which in 2011 had $177 million in revenue.

Jacobs, the CEO of XPO Logistics, has vowed to build the company into a multibillion-dollar, non-asset-based company and has opened 18 offices.

Atlanta-based 3PD ranks No. 30 on the Transport Topics Top 50 listing of logistics companies. XPO is not on the list, but has grown enough to make the 2013 list, which will be compiled later this year.

XPO said that 3PD is the largest non-asset based provider of “final-mile” logistics, which includes home delivery and installation of furniture, appliances, electronics and building supplies.

Karl Meyer, 3PD’s founder and CEO, formerly worked at retailer Home Depot and shifted its final-mile unit from company owned to a third-party provider approach.

“We’re eager to join the XPO family and extend our track record of outpacing industry growth. We can cross-sell our services and share customer-centric technologies,” Meyer said in the XPO statement.

Jacobs told TT the acquisition will enable XPO to offer a range of services, from a manufacturing site to the customer’s front door.

“This acquisition was also driven by outsourcing, e-sourcing and e-commerce,” he said, citing fast-growing trends in the supply chain and retailing industries.

XPO will pay $357 million in cash and $8 million in its stock for 3PD, and expects the deal to close later in this quarter. The purchase of 3PD, which was founded in 2001, will be paid in part through a $195 million term loan from Credit Suisse Group, XPO said.

If completed, the acquisition is expected to be immediately and significantly accretive to earnings, according to an XPO statement July 15.

Jacobs also said that the acquisition will result in positive EBITDA — earnings before interest, taxes, depreciation and amortization — in the fourth quarter. On that basis, XPO lost $11.3 million in the first quarter and $28.3 million last year.

Through the first five months of 2013, 3PD had annualized revenue of $319 million and produced about $115 million in EBITDA on that basis, XPO’s statement said.

“XPO can leverage 3PD’s relationships with Fortune 500 shippers to help accelerate growth across its national accounts team,” said a July 16 report from Justin Yagerman at Deutsche Bank. “XPO should be able to cross-sell its customer base of more than 8,500 accounts [largely small- and medium-size shippers]” to win more brokered truck shipments.

Analyst John Larkin at Stifel Nicolaus asked in a report, “Does this acquisition signal a merger and acquisition market for XPO regarding traditional brokers? Are they unwilling to sell? Have valuation expectations been too high?”

Larkin cited recent sales of Transplace and the Phoenix International Inc. freight forwarding acquisition by C.H. Robinson, in which the price paid was more than 10 times EBITDA.

His report also said “expect the next few announced [XPO] acquisitions to be in the traditional domestic truck brokerage space — a market which is more than 13 times larger than the outsourced last-mile delivery market.”

Jacobs said the purchase of 3PD isn’t a sign that XPO is shying away from brokerage.

“We love brokerage,” he said, joking that 3PD’s final-mile delivery and brokerage were “kissing cousins” because both companies are non-asset based deliverers of freight.

When asked if there would be a pause in acquisitions, Jacobs said “it will be more challenging to do, but there are smaller acquisitions that are under discussion.”

An important reason for the acquisition of the Atlanta-based company, Jacobs said, was its information and customer satisfaction technology.