Citing an inability to differentiate itself in the North American truckload market, XPO Logistics Inc. (NYSE: XPO) (“XPO”) divested the Con-way truckload segment in a deal announced October 27, 2016.  XPO originally acquired the business as part of the broader Con-way transaction last year.  Shortly after the Con-way deal closed, XPO signaled it might divest the unit but later reversed itself.  The company reportedly rejected multiple offers based on valuation.  Analysts last year pegged the unit's value at no more than $400 million.

Against this backdrop, TransForce, Inc. (TSE:TFI) (“TransForce”) stepped forward to purchase the business from XPO for $558 million, or 4.85 times projected 2016 EBITDA of $115 million (Source: TransForce press release, Oct 27, 2016). The deal should not have been a surprise for TransForce shareholders – in July 2016, the company publicly indicated an interest in making a sizable US truckload acquisition – and the company’s stock reacted positively to the news, trading up 8.9%. 

We divested these assets to concentrate on growing our value to customers in the areas where we're leaders in the industry: contract logistics, truck brokerage, less-than-truckload, last mile, intermodal, drayage, expedite and managed transportation.

- Bradley Jacobs. Chairman and CEO, XPO Logistics

TransForce plans to operate the acquired business under its original name of Contract Freighters (“CFI”) (Source: Trucking Info, Oct. 26, 2016). CFI is a storied truckload operation now on its third owner in less than 10 years.  The deal timeline speaks to the recent progression of the truckload deal cycle.

Con-way acquired Contract Freighters in 2007 for $751 million, in a deal priced at 7.6x trailing EBITDA, almost 3 full multiple points above the most recent valuation.  Contract Freighters generated revenue and EBITDA of $435 million and $99 million, respectively, in the 12 months prior to the 2007 deal (Source: CapitalIQ). 

Eight years later, XPO valued the combined Con-way – national LTL, the Menlo contract logistics business and CFI together -- at 6.2x trailing EBITDA of $497 million. CFI generated about 10% of Con-way’s revenue at the time, based on reported 12-month CFI revenue and EBITDA of $593 million and $106 million, respectively (Source: CapitalIQ). 

This acquisition significantly strengthens TransForce’s presence in the North American truckload landscape with prominent market positions in domestic US and cross-border Mexico freight.

- Alain Bédard, Chairman, President and CEO, TransForce

When asked why XPO chose to sell CFI now, arguably at a trough valuation in a “tepid economy”, Chairman and CEO Bradley Jacobs told Transport Topics it was a fair deal, a “win-win” for both companies (Source: Transport Topics, Oct 27, 2016).