UPS offloads Coyote Logistics business to RXO for $1 billion

UPS sells its Coyote Logistics business for $1.025 billion as it continues cost-cutting drive

UPS has reached an agreement with RXO to sell its Coyote Logistics business for $1.025 billion in cash, funded by a mix of equity from RXO and investment partners and debt.

The former is realigning its business in the wake of a slowing post-pandemic parcel sector. This involves more than $3 billion in cost-cutting and $6 billion in a multi-year investment plan that will focus the company more on higher margin business segments, particularly healthcare and small- and medium-sized businesses.

Coyote Logistics, a third-party logistics service provider offering mainly road freight brokerage, was deemed not to fit into the UPS plan, with its parent company known to be looking to offload the company throughout 2024.

The deal is a noticeable discount from when UPS acquired the company in 2015, when it paid $1.8 billion in 2015.

“As UPS positions itself to become the premium small package provider and logistics partner in the world, the decision to sell our Coyote Logistics business allows an even greater focus on our core business,” said UPS Chief Executive Officer Carol B. Tomé.

For RXO, the acquisition is aimed at boosting market share, particularly for customers with large freight requirement, potentially creating the third-largest provider of brokered transportation in North America and, eventually, to shore up thin margins for RXO in what has been a tough freight market.

Drew Wilkerson, chief executive officer of RXO said that: “The addition of Coyote’s customer base will diversify RXO’s vertical mix and will increase the number of customers that do more than $1 million in business with us by approximately 80%.”

Coyote Logistics sales in 2023 totalled $3.2 billion with $86 million of adjusted Earnings Before Interest Taxed, Depreciation and Amortisation (EBITDA). RXO forecasts a Q2 2024 adjusted EBITDA of between $24 million and $30 million and has seen its EBITDA margins sit largely around 3-5% over the last 12 months.

If regulatory approval is given, the companies said that they expect the deal to close before the end of the year.

Under the terms, RXO is contracted to continue to fulfil UPS’s brokered transportation needs until January 2030.

In 2023, Pitney Bowes reported that Amazon Logistics and smaller carriers had eaten into the US package delivery sector, with UPS facing the steepest declines in volume last year, declining 10.3%. It also noted revenue per parcel had declined, creating challenges for the major carriers.

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