XPO Logistics eyes up to $8bn in deals
Services group is in talks with about 12 companies and has increased its tech spending
XPO Logistics, which grew to an $11bn transportation and supply chain rival to FedEx and UPS through small acquisitions, is gearing up for as much as $8bn worth of new deals to consolidate the fragmented industry, its chairman and chief executive said on Wednesday.
The Connecticut-based group, which has more than 95,000 employees in 32 countries, ended a four-year deal spree in 2015 to integrate its purchases and roll out new technology with an aim of securing leading positions in faster-growing corners of the market such as ecommerce and “last mile” deliveries of heavy goods.
Now, said Brad Jacobs, taking on new debt could give it a “war chest” of $6bn-$8bn, and since last year it has narrowed a list of hundreds of potential targets to about a dozen with which it is in discussions.
“It could be one big deal or two smaller deals,” he said, “but the base case is that by the end of the calendar year we’ll have completed one or two of these.” Between 2007 and 2015 XPO examined 2,000 companies before eventually buying 17 of them.
With revenues equal to less than 2 per cent of its $1tn addressable market, Mr Jacobs said, XPO saw “a lot of runway” to take market share from rivals, particularly smaller groups lacking its international reach, which multinational clients value.
The US remains XPO’s largest market, accounting for about 60 per cent of its sales, followed by France with 13 per cent and the UK with 12 per cent. It is under-represented in Germany, Mr Jacobs said, but it had not picked its acquisition targets to fill a single gap in the map; almost all operate in several countries.
His comments came as XPO reported first-quarter earnings that showed an 18.4 per cent advance in revenues to $4.2bn and a jump in net income from $19.5m to $66.9m, driven by ecommerce demand and growth in freight brokerage.
“If you look at all the markets we operate in, none are in recession right now. Two to three per cent average GDP growth around the world is really good for us,” he said.
Healthy markets had also encouraged XPO to “front-load” its capital expenditure in the first quarter of the year, he said, as it stepped up spending on its fleet and technology, allowing it to integrate with voice assistants such as Alexa, use drones to check its warehouse stock, and predict how many ecommerce packages will be returned by consumers.
XPO reaffirmed its target of adjusted earnings before interest, tax, depreciation and amortisation of at least $1.6bn for the full year, with cumulative free cash flow for 2017 and 2018 reaching about $1bn.
Its shares, which have risen 92 per cent in the past year, ended the day down 2 per cent at $93.59, before the earnings were released after the market close.