XPO Logistics is vetting strategic alternatives through spin off or sale of some business units

Editor’s Note: This article will be update later in the day following an interview with XPO Chairman and CEO Brad Jacobs.

Going back to its inception in 2011, Greenwich, Conn.-based XPO Logistics, a provider of global freight transportation and logistics services, made it clear it would build up and increase its market presence across myriad geographies, verticals, and modal offerings in the form of a growth by acquisition strategy, which quickly made the company a force in the markets it serves. In recent years, though, XPO’s acquisition activity has cooled, and late yesterday it said there is a possibility XPO may shift to selling mode after years of being a buyer.

XPO said that its board of directors has authorized a review of strategic alternatives, which includes the possible sale or spin-off of one or more of its business units. And it added that there is “no assurance of any specific outcome” and there is no specific timetable for the completion of the review process or which, if any, of its business units would be sold or spun off.
 

“XPO is the 7th best-performing stock of the last decade on the Fortune 500, based on Bloomberg market data,” said XPO Chairman and CEO Brad Jacobs in a statement. “The share price has increased more than ten-fold since our investment in 2011. Still, we continue to trade at well below the sum of our parts and at a significant discount to our pure-play peers. That’s why we believe the best way to continue to maximize shareholder value is to explore our options, while remaining intensely committed to the satisfaction of our customers and employees.” 

During its nearly ten-year existence, XPO has made myriad significant investments, with perhaps the two most high-profile ones coming in 2015, when it brought both Lyon, France-based 3PL Norbert Dentressangle SA into the fold for $3.53 billion to boost its European presence, and Con-way in September 2015 for $3 billion, which made it one of the top LTL providers in North America and also expand its global contract logistics, managed transportation and freight brokerage businesses. Since Jacobs took the helm and established XPO, the company made 17 acquisitions between March 2012 and October 2015.

“Brad Jacobs has had legendary success pursuing acquisition-led growth,” said Ben Gordon Managing Partner of Cambridge Capital, an investor in niche supply chain leaders and also Managing Partner of BGSA Holdings, a leading mergers and acquisitions advisory firm focused on the transportation, logistics, and supply chain technology sector. “He scaled up prior companies including United Waste and United Rentals via deals. He then scaled up XPO with 17 acquisitions or investments. Normally Brad has been a buyer, not a seller. That said, he expanded XPO (originally Express-1) from expedited to intermodal to truck brokerage to contract logistics to less-than-truckload to truckload and more. It’s not surprising that some of the pieces proved to fit together better than others.”

Gordon added that it is likely Jacobs looks at the fact that XPO trades at 9.3 times EBITDA and thinks the company is undervalued. By comparison, he explained that CH Robinson trades at 12.5x EBITDA, Expeditors trades at 14.8x EBITDA, UPS trades at 15.6x EBITDA, and FedEx trades at 16.3x EBITDA.

“If XPO were to divest a division it considered non-core, the market could respond favorably,” noted Gordon. “Lastly, Brad might view a divestiture as a way to pay down debt and strengthen his balance sheet. For all of those reasons, I can understand why XPO is considering these strategic alternatives for a business unit.”