Market Reacts Positively to RXO-Coyote Deal; Combined Company to Rank as Third-Largest 3PL Provider

Wall Street greeted RXO's acquisition of Coyote Logistics, which was disclosed on Sunday, with great enthusiasm on Monday. The move, according to management, will propel the company's stock price into the double digits and position it as the third-largest freight brokerage in the nation.

RXO stock was up almost 21.9% to $24.64, a gain of $4.43, at 11:15 a.m. EDT. On the same day, it reached a 52-week high of $25.07 per bar.

Despite requiring the issuance of fresh equity to two large owners, MFN Partners and Orbis Investment Management Ltd., to invest $550 million for a combination of preferred and common stock, Wall Street is praising the deal to purchase Coyote from UPS (NYSE: UPS). In order to execute the deal, RXO is also borrowing $1.1 billion in bridge loans from Goldman Sachs.

RXO (NYSE: RXO) paid an estimated "reasonable price" of nine times predicted earnings before income, taxes, depreciation, and amortization in 2025 for Coyote, according to a research released on Monday by Jason Seidl of TD Cowen. At $1.025 billion, the price was over twelve times the Coyote EBITDA of approximately $86 million in 2023 that RXO had revealed.

During a Monday morning analyst call, Seidl and RXO management stated that the acquisition will elevate the company to the No. 3 brokerage. The identities of the other two firms were not disclosed, however it is generally accepted that C.H. Robinson (NASDAQ: CHRW) and TQL are the top two.

In 2023, RXO's total sales came to $3.93 billion. RXO CEO Drew Wilkerson stated on the analyst call that Coyote sales was roughly $3.2 billion in the previous year.

In the previous year, coyote produced a gross margin of around $470 million, or 14.5% of revenue.

Coyote's projected 2023 EBITDA of roughly $86 million meant that RXO and Coyote together would have produced almost $218 million in EBITDA in 2022.

RXO valued the deal's synergies at $25 million, and all of them are anticipated to materialize within the year following the completion, which is anticipated to occur by the end of the year.

Although the average Coyote customer is typically smaller than the average RXO customer, Wilkerson stated that the acquisition of Coyote will raise the number of users of its service who generate more than $1 million in sales with the brokerage by roughly 80%.

Wilkerson continued, "The combined company will also have a more diversified book of business." While RXO's business has gravitated toward retail and industrial/manufacturing, Coyote's top two verticals are food and beverage and transportation. He said that "there is minimal overlap across our largest customers."

Seidl was complimentary about the fact. He remarked, "We are encouraged to see that there is minimal customer overlap with RXO's legacy business focused on larger enterprise customers and Coyote's business heavily focused on small to medium businesses." "Differences also exist with regard to the carrier base. RXO has access to larger fleets, whereas Coyote typically concentrates on smaller carriers.

UPS is one client that is remaining. According to Wilkerson, a clause in the sales deal with UPS mandates that UPS employ RXO's services until 2030; however, the extent of the commitment was not disclosed.

Vertical Research Partners analyst Jeff Kauffman outlined the "opportunities to improve margins" associated with the Coyote acquisition.

The third-biggest brokerage's reputational boost will help "solicit a higher level of customer freight," he said, along with the ability to better secure purchased transportation, cross-sell services to "a different customer base," and "reduce duplicate back-office costs."

When Coyote joined the fold in 2025, Seidl said he was increasing his projected earnings for RXO to an EBITDA of $292 million, up from $193 million without Coyote. Seidl's forecast for 2024 remains unchanged, considering the likelihood of the merger closing in the fourth quarter.

Both Kauffman and Seidl maintained their "hold" stock ratings for RXO. Kauffman stated, "Even though the news is encouraging, the deal still needs to receive approvals, the brokerage industry needs to bottom out, and management needs to execute."

Despite RXO's self-proclaimed organic expansion, Wilkerson pointed out that the company had acquired twelve companies since 2012, some of which occurred when it was a part of XPO (NYSE: XPO) before its 2022 spinoff. "Over the previous five years, we have grown brokerage volumes organically by approximately 70%, greatly outperforming the industry,” he stated, citing his unique strategy.

He said that he did not think the trend of consolidation would halt anytime soon. "In the next five years, we think there will be more consolidation, and the winner will be the one with the strongest financial protocols, the best technology, and the deepest customer relationships," Wilkerson said.

During the call, CFO Jamie Harris restated RXO's announcement from Sunday regarding the purchase, which stated that it would be "immediately and significantly accretive to adjusted earnings per share and adjusted cash flow."

Throughout the call, RXO management emphasized how the merger will allow them to spread out their combined fixed cost structure over a larger book of business. Harris stated, "We'll be able to better utilize our fixed costs and continue to optimize our cost structure."

Chief strategy officer of RXO Jared Weisfeld stated that roughly 79% of Coyote's business is truckload, with the remaining percentage coming from less-than-truckload and, to a lesser degree, intermodal. He went on to say that he anticipates the acquisition will aid RXO in expanding its presence in the "middle market" and small to medium-sized businesses.

When two brokerage firms merge, concerns about the direction and speed of technology integration are always present. Wilkerson stated that Coyote "has put investments into technology and they have a strong operating system" in answer to a query from an analyst.

"We have a chance to maintain the highest level of transportation technology in the world while combining the best of both worlds."

Will the talent stick around? Bascome Majors of Susquehanna Financial Group posed this concern in a study released prior to the conference call.

The "dis-synergy risk from employee turnover that is inherent in all asset-light transport acquisitions of people and technology" was mentioned in his report's discussion of the deal's hazards.

Moody's (NYSE: MCO) has rated RXO as investment-grade debt; S&P Global (NYSE: SPGI) has not. On Monday, Moody's stated that while the Coyote sale would not affect its debt rating, RXO's outlook would remain negative.