XPO splits business to simplify and increase value
Less than a year after spinning off its contract logistics business, XPO Logistics has said that it will separate its North American less-than-trailer load operation and freight brokerage into “two focused, publicly traded companies at the top of their industries”. In addition, XPO said that it “expects to divest its European business and North American intermodal operation to simplify its transportation service offering.”
The truck brokerage will be launched as a separate company by the end of 2022. XPO Logistics said that it had “an exclusivity agreement in connection with a potential sale of its intermodal business, which provides rail brokerage and drayage services”.
The restructuring is the result of the creator and CEO of XPO, Brad Jacobs, manoeuvring his assets to get the best possible valuation for his companies from the capital markets. Like the oil trader that he was, Brad Jacobs is trying different pitches to investors in order to maximize his returns, describing “a large universe of investors who want to invest in a pure-play like LTL that’s asset-based with a high return on capital and levered to the ongoing industrial recovery.” Whilst a different group of investors “want to invest in an asset-light, tech-enabled truck brokerage platform that the spin-off will be”. Brad Jacobs said that the difference in valuation was huge, with other more focused LSPs valued at “around fifteen times EBITDA, we are trading at about seven and a half EBITDA.”
There is an operational reality behind the move, with Mr Jacobs admitting that “when a management team is focused solely on one thing, they do a better job”, but the main motivation appears to be shareholder value.
Once one of the largest logistics companies in the World, XPO Logistics will essentially be no more, rather it will create a legacy of a string of still quite large, focused firms across much of the logistics services markets, including contract logistics, LTL and ‘truck brokerage’. It is a singular approach, with much of the rest of the logistics sector pursuing acquisitions and diversification at a furious pace. That an investor as successful and experienced as Brad Jacobs is so strongly moving away from such a strategy is worth thinking about.