Knight-Swift becomes LTL competitor with $1.35B acquisition

Dive Brief:

Knight-Swift, the largest U.S. TL carrier, acquired AAA Cooper Transportation, an Alabama-based LTL carrier, for $1.35 billion on Monday. This marks Knight-Swift's entry into the LTL market, the company said in a news release.
Knight-Swift officials said in the release they had three standards for entry into the LTL market: significant market share, profitability and management expertise to operate independently of Knight-Swift's main operations, "and a world class culture."
Knight-Swift CEO Dave Jackson said in the announcement that the newly acquired LTL firm will grow organically and through future acquisitions. This indicates the Phoenix-based carrier seeks further opportunities in the North American LTL market, which Jackson noted has advantages over the TL sector in terms of driver turnover and equipment costs.

Dive Insight:

Knight-Swift's leap into the LTL sector is a sign M&A in the transport sector is heating up again. But one difference this time is some carriers are using it to enter new markets.

For Knight-Swift, that means a foray into LTL. And for Werner, it means carrying out its first TL acquition. It bought ECM Transport Group for $142 million, acquiring 80% of the company.

Big carriers are flush with cash and credit opportunities, as capacity is tight. The economic recovery and e-commerce boom are pushing freight to new heights. M&A experts predicted 2021 would be a year of acquisitions, with activity lasting throughout the year.

"Trucking has been very bullish because capacity is king," Nikhil Sathe, managing director at Logisyn Advisors, said in April. "[Freight] has been a big winner throughout the pandemic."

And in some cases, pent-up demand is pushing forward deals that were pondered in 2020, before the COVID-19 pandemic halted big plans.

Another reason for M&A behavior in trucking could be carriers' interest in acquiring more drivers and more equipment to capitalize on demand. Supply chain problems have caused OEMs to slow down in the production of new Class 8 tractors. The dearth of semiconductors has been a major headache.

AAA Cooper has almost 3,000 tractors and 7,000 trailers, according to Knight-Swift. And AAA Cooper has 4,800 employees, although the two companies did not specify how many full-time drivers the LTL firm has.

Drivers are increasingly looking for jobs that get them home regularly or every night. Werner said ECM Transport's hauls were shorter in length than Werner's OTR average, allowing for "high-frequency driver home time."

Jackson said Knight-Swift's diversification with an LTL company will aid in driver retention and equipment costs.

"Driver retention is more favorable, and even though volumes can be cyclical, the rate structure has less volatility," Jackson told investors and analysts on Tuesday. "Additionally, the equipment has longer lives, which can improve the free cash flow profile compared to full TL at similar operating margins."