XPO Logistics has announced plans to buy Pacer International for $335m in a deal that is expected to close in the second quarter of this year subject to regulatory clearance. The move, which will make it the third largest provider of intermodal services in North America, follows a commitment from Credit Suisse to provide XPO with up to $325m in senior secured term loan facilities to fund the buyout, along with other potential future acquisitions. It is the eleventh acquisition that XPO has made in the last two years.
XPO Logistics (formerly Express-1 Expedited Solutions) is a non-asset based third party logistics provider based in Connecticut, US that offers truckload, LTL, ground and air expedited services for the automotive industry (amongst others), as well as intermodal and transport services. These customers include OEMs, tier one and two suppliers, as well as other supply chain partners.
Brad Jacobs, CEO of XPO Logistics, told Automotive Logistics that the company hoped to grow its offering to the automotive sector with the acquisition of Pacer.
“We’ll be able to offer a single source option to our automotive customers,” he said. “We’ll act as a lead logistics provider and offer multi-modal options ranging from cost effective rail solutions to time critical air charter solutions.”
Pacer International is one of the biggest providers of intermodal services in North America with a sizable double stack rail operation. In fact, it is the largest single provider of intermodal container services between the US and Mexico, with 25 years of experience serving Mexico. Cross border transport between Mexico and the US is one of the fastest growing businesses in North America, not least for automotive logistics providers.
By 2019 assembly plants in the US south and Mexico will represent almost 50% of North American light vehicle output, according to figures from IHS Automotive. Mexico has grown from accounting for 13% of North America light vehicle output in 2007 to 19% in 2012, according to the analyst firm, and this is forecast to rise to 23%, particularly with the country set to add nearly 1.5m more units of production in the next four years.
Jacobs recognised the fast pace of developments in cross border shipments there and said that Pacer’s operating expertise and relationships with companies in Mexico would put XPO in a strong position.
Intermodal targets on course
A couple of years ago Pacer declared it was pursuing automotive parts shipments as a retail provider of door-to-door intermodal services and this is something it will continue to grow for the automotive industry as part of XPO Logistics.
“The Pacer acquisition, our recent acquisition of NLM and our full suite of logistics services will enable XPO to provide a comprehensive offering to automotive customers,” said Jacobs.
“Pacer will continue in its role for Union Pacific and the acquisition only helps to strengthen the relationship,” confirmed Jacobs. “Intermodal is something that XPO’s automotive and other customers have been asking for. We have a great opportunity to convert more of these truckload shipments to rail.”
Jacobs will lead the combined company while maintaining his established roles. Daniel Avramovich, CEO of Pacer, will serve as CEO of a newly created XPO unit, which will retain its Dublin, Ohio, operations centre.
“We've viewed Pacer as a valuable acquisition candidate for quite a while,” said Jacobs. “This transaction will make us the third largest North American provider of intermodal services, one of the fastest-growing areas of transportation logistics. We'll also be the largest provider of intermodal services in the burgeoning cross-border Mexico market, where growth is being driven by a trend toward near-shoring manufacturing. We expect this transaction to be significantly and immediately accretive to our earnings and accelerate our growth company-wide."
Avramovich, meanwhile, said Pacer was confident that the deal would maximize value for its shareholders by providing immediate cash value and providing the opportunity to gain from “upside potential” of the merger.
“This exciting combination is a testament to our dedicated employees who will have new opportunities as part of a larger organisation,” said Avramovich. “We will be introducing intermodal to thousands of new customers through the XPO logistics network, and we look forward to working closely with XPO to ensure a seamless integration.”
Shareholders of Pacer will receive $6.00 in cash and $3.00 of XPO Logistics common stock for each share of Pacer common stock.