Echo Global Logistics’ $37.3 million acquisition of the Watsonville, California-based transportation brokerage firm One Stop Logistics this week is expected to help the third-party logistics provider increase its domestic less-than-truckload brokerage business.
One Stop Logistics, which has offices in Northern California and Florida, will begin doing business as Echo Global Logistics immediately. One Stop is a non-asset provider of less-than-truckload and truckload brokerage services. According to industry analyst Stephens, about 85 percent of the company’s revenue is from LTL business, with the remaining 15 percent from truckload. For Echo, LTL makes up 45 percent of total shipments.
Transportation brokerage is increasing share in the LTL market as smaller shippers are increasingly going to brokers instead of directly to an asset-based LTL carrier, Jack Atkins, a research analyst at Stephens, told the JOC. Domestic transportation management, led by C.H. Robinson, Hub Group, Coyote Logistics and Echo, has grown rapidly over the last decade, as shippers have continued to outsource to freight brokerages expanding LTL shipment offerings.
Steve Brown, a 15-year veteran of One Stop, will be Echo’s newest regional vice president, leading all operations of the newly acquired entity. All existing management and employees will remain with Echo subsequent to the acquisition.
Of the total purchase price of $37.3 million, $19.8 million was paid at closing, $13.8 million is payable January 2015, and $3.7 million is payable in one year pursuant to the terms of an earn-out arrangement.
“With this acquisition, we continue to position Echo for further growth by expanding our national coverage and leveraging our technology, our carrier network and our service offering,” said Douglas R. Waggoner, CEO of the Chicago-based Echo Global Logistics, in a written statement.
According to Stephens, the acquisition adds scale to the domestic transportation management company’s operations along the West Coast in particular, and offers significant potential revenue and cost synergies to Echo’s “rock solid” balance sheet.
In the first quarter of 2014, Echo increased revenue 21.4 percent year-over-year to $247.7 million, including $65 million in revenue attributed to two first quarter acquisitions. In April, Echo said it expected revenue to rise 18 to 24 percent in 2014 to a range of $1.04 to $1.1 billion, breaking the billion-dollar barrier for the first time after rising 16.7 percent last year to $884.2 million.
“Effective with this transaction, we are raising 2014 gross revenue guidance to a range of $1.07 to $1.13 billion,” said Kyle Sauers, CFO of Echo Global Logistics. “It is expected that the One Stop acquisition will be accretive to earnings for the second half of the year, with immaterial impact in the second quarter after considering integration costs.”
During the prior 12 months, One Stop’s total revenue grew 14 percent to $50.7 million.
“Given Echo’s existing sophisticated LTL technology platform and its large scale in the LTL market, we think that One Stop will be quickly integrated into the company’s systems and there is the opportunity for meaningful purchased transportation savings,” Stephens said. “We continue to believe that [Echo] is well positioned to see an acceleration in its earnings growth as 2014 progresses driven by market share gains and overhead leverage.”
Atkins said Echo is gaining market share in the truckload brokerage business from other truckload brokers, mostly mom-and-pop shops that are losing share to bigger players.