How UPS Plans to Benefit from Its Coyote Acquisition, Investopedia

How UPS Plans to Benefit from Its Coyote Acquisition. United Parcel Service, Inc. (NYSE: UPS) is the largest package delivery company and provider of supply chain management solutions in the world. The global logistics company is headquartered in Georgia, and it delivers more than 15 million packages a day to more than 6.1 million customers. UPS customers are spread across 220 countries around the world. Recently, UPS made news by acquiring Coyote Logistics for a reported $1.8 billion. Coyote Logistics is a full-scale service provider that offers transportation and logistics services to more than 12,000 customers across a wide range of industries. This acquisition aims to strengthen UPS' business while eliminating a competitor. However, there are always specific reasons why a multinational will acquire another for more than $1 billion. 1. Coyote Has Scale That UPS Can Use. Coyote Logistics, a Chicago-based firm, has a network of about 35,000 contract carrier companies. It leverages these contract carrier companies to help other shipping companies with short-term trucking requirements. With this scale, the acquisition by UPS allows the company to take advantage of Coyote's network of contract carrier companies to increase delivery frequency, lower delivery rates and improve margins. This increase in scale couldn't come soon enough for UPS. The company faced a large decline in business during the 2013 holiday season when it was unable to meet service demands. Since leaving money on the table in 2013, the company has been very sensitive about ensuring that it has the capacity to meet seasonal spikes in demand, such as during the holidays. The acquisition of Coyote Logistics is expected to help UPS by providing a larger and more seamless supply chain during peak seasons. 2. Coyote Has a Large and Diversified Network. Coyote Logistics has a large, diversified network of over 12,000 customers that require 6,000 truckloads per day. The company has a strong market position across multiple types of customers, including food and drink companies, retailers, paper firms and industrial firms. This acquisition will allow UPS to tap into this diversity of customers and strengthen its business. Thanks to these multiple customer profiles, Coyote Logistics also has vast industry knowledge, a large amount of intellectual property, diverse employee talent and a great company culture. By acquiring this company, UPS will benefit from the knowledge and talent otherwise unavailable to it. 3. Coyote Has a Track Record of High Financial Performance. Coyote Logistics boasts a five-year compound annual growth rate (CAGR) of 50%. Additionally, the company is known for having a stable earnings before interest, taxes, depreciation and amortization (EBITDA) margin and a high return on invested capital, which shows that it will add growth and stability to UPS. Coyote Logistics is expected to add $150 million in revenue and savings to UPS immediately, and it is also expected to lower UPS' empty leg trips with added shipments. Instead of UPS eating costs by sending half-filled shipments to areas of the world that need servicing, the company will now be able to increase its margins through a higher per-shipment revenue with the same operational costs. In fact, thanks to Coyote Logistics' operational efficiencies, margins may further increase on shipments. 4. Coyote Has High Technological Capabilities. This acquisition isn't the first time UPS and Coyote Logistics have worked together. After the 2013 holiday season debacle, UPS contracted Coyote to design a set of software to help UPS meet holiday demands through an increase in logistical efficiencies. UPS is still using this software today, and the acquisition of Coyote ensures that UPS will be able to create or update its logistics software as needed, further adding to its efficiencies.