On a recent episode of WHAT THE TRUCK?!?, Drew Wilkerson, CEO of RXO, spoke with host Timothy Dooner about a wide range of topics, including RXO’s recent acquisition of Coyote Logistics, implementing Coyotes newly acquired technology and his thoughts on mergers and acquisitions in the coming year.
One of the big questions asked was what led to the decision to buy Coyote from UPS. For Wilkerson, purchasing Coyote was a strategic fit due to its similarities to RXO, including a focus on service, solutions to customers, use of technology and building relationships. “When you look at Coyote, they were a strategic fit because they looked at business very similarly,” he says.
Wilkerson adds that while the businesses complemented each other, they still did a lot of due diligence and identified that there wasn’t much in terms of customer and carrier overlap. A big positive was the strength of the Coyote management team, especially over the past six months.
Another compelling reason for the purchase was the opportunity to double the size of RXO’s freight brokerage at the bottom of the freight cycle. “When you look at our management team’s cost, we’re able to spread that out across more loads, you pull down your cost per transaction.” Wilkerson gave examples where on some lanes, Coyote or RXO may be the clear winner and able to buy significantly better due to its existing carrier relationships. That synergy of combining two systems to drastically lower purchased transportation costs was something Wilkerson highlighted when C.H. Robinson acquired American Backhaulers.
Wilkerson believes RXO’s acquisition will improve the ability for the newly combined companies to lower their overall purchased transportation cost. He added, “When we look back on this 12, 24 months from now, we’re going to procure transportation a lot better than what we’re doing today.”
Asked about the state of M&A, Wilkerson said he believes the industry is still in the early stages of consolidation. “There’s over 17,000 brokers out there across the country, but when you really take a step in and you look at it, now post our acquisition of Coyote, I think the top nine make up around 50%.” Wilkerson believes more consolidation is on the way, with industry players that have strong balance sheets, great relationships with customers and good technology in a position to do more M&A.
“M&A is always a tough deal; you have to have a seller that’s happy with the price they’re getting, you have to have a buyer that’s happy with the price that they’re paying. It’s gotta be something that is a good fit for the company.” Wilkerson adds that a lot of work goes into integrating two companies, especially two large companies, but he believes the industry is in a good position to see more M&A’s over the next 12 to 24 months.