(Reuters) - United Parcel Service Inc (UPS.N) said it would buy Coyote Logistics from private equity firm Warburg Pincus for $1.8 billion to expand its full-truckload services, the latest deal in a rapidly consolidating logistics industry.
Coyote Logistics connects customers to its network of more than 35,000 trucking operators in North America and caters to the food and beverage, consumer goods, paper and packaging, industrial as well as retail markets.
Brokers such as Coyote Logistics and XPO Logistics Inc (XPO.N) have reported rapid revenue growth in the past few quarters as the demand for trucks jumped due to widespread bottlenecks on rail networks.
“This deal shouldn’t move the needle at UPS, but could support shares of smaller brokers near-term by driving further consolidation speculation,” Susquehanna Financial Group analyst Bascome Majors wrote in a note on July 22, when Bloomberg reported of a possible UPS-Coyote Logistics deal.
The U.S. freight market is estimated to be worth $300 billion, with full-truckload shipping accounting for just over half of that, according to logistics company G-Force Shipping.
Third-party logistics providers have recently been snapped up in a series of deals, including XPO Logistics’ purchase of France-based Norbert Dentressangle SA and Goldman Sachs’ (GS.N) acquisition of Neovia Logistics LLC.
PricewaterhouseCoopers said in a recent report it was optimistic about the M&A outlook for the U.S. transportation and logistics industry this year.
“The brokered full-truckload freight segment is a high growth market and we expect it will continue to outpace other transportation segments,” UPS Chief Executive David Abney said.
UPS, whose full-truckload business is smaller than its less-than-truckload services, said on Friday it has worked with Coyote Logistics in the past to add capacity during peak holiday shipping seasons.
Chicago-based Coyote Logistics, which reported revenue of $2.1 billion last year, is the sixth-largest U.S. truckload services provider, according to research firm Armstrong & Associates Inc.
C.H. Robinson Worldwide Inc (CHRW.O) is the largest, followed by XPO Logistics.
UPS said it expects the deal to close within 30 days and add to its earnings in 2016.
The company’s shares rose 1.2 percent to $102.63 in morning trading on Friday.
BofA Merrill Lynch and UBS were financial advisers to UPS, while Goldman Sachs & Co, Credit Suisse, Morgan Stanley and Wells Fargo Securities advised Coyote.
Editing by Saumyadeb Chakrabarty and Savio D'Souza