Transplace is upstream, Uber Freight is downstream, and now they’re getting married

The word that comes up over and over again in discussions about Uber Freight’s (NYSE: UBER) acquisition of logistics platform provider Transplace is “customer”.

Transplace, as a provider of transport services managed through its transport management systems, is considered a ‘down shipper’ operation, providing services to companies looking to move freight to market and having decided to outsource this task for a company like Transplace.

Uber Freight, on the other hand, is seen as a company that comes into the market with a platform primarily aimed at carriers looking to find trucks that can carry freight more efficiently.

The combination of the two, according to a presentation by Uber Freight, enables “customer-centric solutions”.

The merger of the companies in Uber Freight’s $ 2.25 billion acquisition announced Thursday morning is seen as unusual in logistics, where both sides of the normal division interact on platforms but where these platforms are mainly targeted on “one or the other”.

The seller of Transplace is TPG Capital, a private equity firm.

Frank McGuigan, CEO of Transplace, said Transplace was interested in being acquired throughout 2020 and “has decided to listen to offers in the first half of this year”.

With three different PE companies having previously owned, the move to a fourth had limited appeal, he said. “We were at a point where we need to do something transformative,” he said.

Ryan Schreiber, director of engagement at transportation technology consultancy CarrierDirect, said the two companies’ motivations in the deal were clear.

For Uber Freight, the acquisition of Transplace allows it to gain a foothold in securing an activity that is now moved as managed transport. “It’s a whole new line of business that is more stable and more transparent,” said Schreiber. He said Uber Freight’s management clearly believed they could apply their digital brokerage technology to a “relatively high-margin business.” Uber Freight’s model does not lend itself easily to securing freight managed in its system; Schreiber said that could change with the acquisition of Transplace, referring to “all that spot freight”.

For Transplace, Schreiber said, the ability to merge its technology with that of Uber Freight is essential. Uber Freight’s technology has some advantages over Transplace’s, and “getting to bed” with Uber Freight provides access to this technology, as well as the ability to inject more capital into technology development.

This is not an easy task. Beyond the multi-billion dollar price tag, Uber Freight’s presentation on the deal offered to investors shows the size of Transplace. Although the presentation does not specifically disclose Transplace’s revenue, it did indicate that it had a compound annual revenue growth rate (CAGR) of 15% since 2017. Its earnings before interest, taxes, depreciation and amortization reached a annual rate of over $ 100 million in the first quarter compared to $ 54 million for 2017 as a whole.

If rounded to $ 100 million, the sale price marks a multiple of 22.5 times EBITDA for Transplace, an extremely high number.

McGuigan, CEO of Transplace, referred to Uber Freight’s technology as a primary reason for selling the business. He cited his “in-depth data science ability”. And on the topic of customer focus, he mentioned Uber Freight’s “strong national sales presence”.

“For me, this is all complementary to what we’re trying to do, which is to build an amazing sender platform for the benefit of the whole community,” McGuigan said in an interview with FreightWaves. “Uber Freight does the same. It’s just that they do it from the carrier up and we do it from the shipper down.

McGuigan was asked if integrating with Uber Freight could mean a reduction in the presence of human brokerage at Transplace, replaced by the algorithms that drive Uber Freight. His response: “No way.”

“Our technology will be integrated and we’ll get the best of both,” McGuigan said. “We are both double-digit producers and we are recruiting. We need more people, not fewer people.

Uber Freight has undergone a major transformation in recent months. Shortly after discussing Uber Freight’s place in Uber’s larger strategic division, the company responded to that question with an emphatic “yes” by receiving a $ 500 million investment from Greenbriar Partners. At the time, Lior Ron, Director of Uber Freight, said: “We wanted customers to understand that we are here for the long term.”

But that hasn’t ended the question of whether Uber Freight is suitable; it was lifted on a profit call shortly thereafter.

Ron also referred to the customer-shipper combination when asked about the acquisition. “Shippers need solutions more than ever,” he told FreightWaves. “What you need to meet the challenge is a new combination, bringing together Uber Freight’s best supply chain optimization and Transplace’s best shipping solution. When you combine the two, you get higher level optimization, higher level resiliency, and higher level visibility.

In Uber Freight’s presentation, the company said its revenue reached an annual rate of $ 1.2 billion in the first quarter, up from $ 67 million for all of 2017, a CAGR of 106 %. EBITDA – which still remains in the red – was minus 60% of sales in 2007. In the first quarter, it was minus 10%.

In the presentation, Uber Freight said it expects Uber Freight’s adjusted EBITDA to be positive by the fourth quarter of next year, in part thanks to the acquisition of Transplace.

“Significant additional net synergies of $ 40 million [are] is expected to be completed 12 to 24 months after the transaction closes, ”the presentation said.

McGuigan said he expects the deal to be done by the end of the year.

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