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September 22, 2019Cart

Business

by Fairfield County Business Journal
by FCBJ

XPO Logistics: Fast growth through acquisitions and management style

XPO Logistics CEO Bradley Jacobs speaks at his Greenwich company’s October leadership summit. At left is XPO Logistics COO Troy Cooper.

Promising to turn a $175 million-a-year company into a $5 billion one in just five years is a pretty audacious thing to do.

That’s what XPO Logistics Chairman and CEO Bradley Jacobs did while speaking to a group of executives in 2012, shortly after gaining control of the Greenwich transportation and logistics company. Jacobs’ promise proved to be mistaken.

It’s the kind of mistake that most would give their eyeteeth to make. Instead of $5 billion, XPO Logistics ended its fifth year under Jacobs’ leadership with revenues of $14.7 billion.

According to XPO’s third-quarter results, released on Nov. 1, quarterly revenue was a record $3.89 billion, compared with $3.71 billion for the same period in 2016. XPO Logistics stands as the third-largest publicly traded U.S. logistics company, behind UPS and FedEx.

How did Jacobs get it so wrong?

“That’s a good question,” the 61-year-old Rhode Island native said with a laugh at XPO’s 5 American Lane headquarters. “We focused on building and maintaining a well-organized company with really great people, staying focused on our business plan and executing it well.”

That plan involved making key acquisitions via what Jacobs called “reasonable deals,” and integrating them into XPO’s existing technology and sales culture.

“It really all fell into place,” he said, “and it went faster than I’d originally thought.”

NOT HIS FIRST RODEO

Perhaps those quick results should come as no surprise. Jacobs — who in 2011 gained approximately 71 percent ownership of what was then called Express-1 through his Jacobs Private Equity LLC, which remains XPO’s largest shareholder — has founded five companies and led each of them to become a billion-dollar or multibillion-dollar concern. Over his career, he’s led teams that he estimates have completed about 250 cold starts and 500 acquisitions.

In 1997, he founded United Rentals Inc. in Greenwich. Within 13 months it had become the world’s largest equipment rental company. Over the 10 years he ran it, the company reached $3.9 billion in revenue, with more than 700 branches and 13,000 employees. Jacobs left United Rentals in 2011 when the company merged with RSC Holdings Inc.

In 1989, Jacobs founded United Waste Systems in Greenwich. The company had made more than 200 acquisitions by 1997, when he sold it to what is now Waste Management Inc. for $2.5 billion.

Before his string of business successes in Greenwich, Jacobs in 1984 had founded an oil trading company, Hamilton Resources (UK) Ltd., growing it to annual revenues of approximately $1 billion by the time he quit the business and returned to the U.S.

He had ventured into the oil industry as a 23-year-old in 1979, when he co-founded Amerex Oil Associates Inc., an oil brokerage, and served as its CEO until the New Jersey-based company was sold in 1983. By then its annual gross contract volume had grown to about $4.7 billion.

“This isn’t my first rodeo,” Jacobs said at his office in Greenwich.

THE LURE OF TRANSPORT LOGISTICS

He was first attracted to the transportation logistics industry, he said, when he realized that it was the one common denominator in all of his previous businesses.

“They were all to some degree about moving commodities from one place to another,” whether equipment, oil or waste. “Wherever you look, whether it’s health care, finance or aerospace and defense, transportation and logistics are a key part.”

Acquisitions have played a large part in XPO Logistics’ growth. The world’s third-largest freight brokerage firm and provider of intermodal services and the largest provider of “last mile” logistics for heavy goods, the company grew in part through the 17 acquisitions closed to date under Jacobs’ stewardship. He said the majority of those deals were made to reshape XPO as a one-stop shop for supply chain services across various geographies and customer verticals.

AMONG THE MOST NOTABLE ACQUISITIONS

• National Logistics Management, acquired in December 2013 for $87 million, making XPO  Logistics the largest manager of expedited shipments in North America.

• Pacer International Inc., the third-largest intermodal provider in North America and the leading provider of intermodal services between the U.S. and Mexico, acquired in March 2014 for about $335 million in cash and stock.

• French logistics group Norbert Dentressangle, a leading contract logistics provider in Europe and owner-operator of the largest truck fleet in Europe, acquired in June 2015 for $3.53 billion.

• Con-way Inc., the second largest less-than-truckload transport provider in North America, acquired in October 2015 for $3 billion.

INTEGRATE, STAY HUMBLE

Jacobs said his philosophy about acquisitions — besides “choosing the right company” — is to integrate it as much as possible within XPO, rather than simply gobble it up and ignore the possible consequences.

“I’ve done a lot of acquisitions over the years and we have a management team in place that’s long in the tooth when it comes to acquisitions,” he said. “But I don’t ride in on a horse and say that I’ve got all the answers. There’s knowledge and relationships (at the existing companies) that are extremely valuable.”

“There’s a sense of humility” that XPO strives to maintain with its acquisition targets. “We go in with an open mind, and try to respect all of our employees. We use our ears more than our mouths.”

Today, XPO operates a network of more than 91,000 employees in nearly 1,500 locations in 32 countries. Of its 415 Connecticut employees, 119 are in Fairfield County, including 78 at the 34,000-square-foot Greenwich headquarters.

MORE BUYS AHEAD FOR XPO LOGISTICS

“Acquisitions are not in our life at the moment,” Jacobs told analysts during a February conference call. That has since changed.

“The key phrase there was ‘at the moment’,” he said with a smile. “Our management team is always figuring out the most important things to spend our time on, and then that becomes what we spend our time on.”

With $665 million in newly raised cash, Jacobs said XPO could spend as much as $8 billion in acquisitions, though he doesn’t expect to close a deal until the first quarter of 2018 at the earliest.

“We’re very picky. We looked at over 2,000 acquisitions and selected 17 to buy. What we’re looking for is an entrepreneurial, honest, growth-oriented company that’s bottom line-focused and tech-oriented.”

Jacobs said that mergers and acquisitions is “just one part of the story” at XPO, with technology also playing a major role. The company spends about $425 million each year on tech, he said, largely to differentiate it from competitors like UPS and FedEx.

Examples include the use of drones for counting inventory, robots “working side by side” with product pickers to fill customer orders and predictive analytics software, which Jacobs called “our secret sauce.”

Working closely with its base of about 50,000 customers worldwide, which include 65 of the world’s 100 largest companies, is also key to the company’s growth, Jacobs said. “We help them move their goods through the supply chain in the most cost-effective, efficient and predictable way we can.”

“Can a delivery be made in days or weeks? The answer to that can result in shipping by plane, truck or rail,” all of which XPO provides. That capability has saved its customers “tens of millions of dollars,” Jacobs said.

RIDING E-COMMERCE

E-commerce is a growing factor in XPO’s growth. In its third-quarter results, the company reported the e-commerce and industrial sectors accounted for the largest gains in its North American revenue, which increased from $544.4 million in the third quarter of 2016 to $628.6 million this year.

“We’re also number one in the U.S. in last-mile logistics for heavy goods,” Jacobs said, adding that XPO completed 13 million such deliveries last year. “Five or six years ago, people weren’t buying refrigerators, stoves, exercise equipment and furniture over the internet. That’s no longer the case, and we’re benefiting from it.”

XPO is also girding for what its retail customers expect will be a record holiday season. Based on XPO’s predictive analytics and customer surveys, “We think they’re right,” Jacobs said, “so we’re hiring and training people and opening more fulfillment centers. Europe is the same way — we’re hiring 6,000 in the United States and Canada, and 5,000 in Europe, primarily in France, the U.K. and Spain.”

TEAMSTER LABOR TROUBLES

Jacobs declined to comment on the company’s labor conflict, which made news in late October when XPO withdrew recognition of the Teamsters union as the bargaining unit for 124 workers at its North Haven contract logistics operation. That move came after 73 workers petitioned the company to request that Teamsters Local 443 be removed as the workers’ representative. Typically, workers seeking to drop union representation vote to decertify the union rather than submit a petition to their employer.

Teamsters spokesman Bret Caldwell said XPO Logistics workers and the Teamsters local in New Haven filed numerous unfair labor practices charges with the National Labor Relations Board before the workers’ petition was submitted to the company. XPO was accused of bad-faith bargaining and of inappropriate involvement by management in the decertification campaign, Caldwell said.

“This is not a quick process,” the Teamsters spokesman said. “However, we anticipate winning these charges and the company being required by the government to return to the table.”

ONE-YEAR PROJECTION

Jacobs anticipates XPO being “bigger and more profitable” a year from now, increasing its full-year adjusted EBITDA from an expected $1.365 billion this year to at least $1.6 billion in 2018.

“To achieve that growth, we just need to do two things, the same two things we’ve been doing for a while now. And that’s mid-single-digit organizational growth along with an expanded profit margin of 100 basis points, which we’ve achieved over each of
the past three years,” Jacobs said.