The leaders of Knight-Swift Transportation Holdings have signed a deal to acquire U.S. Xpress Enterprises.
The proposed transaction, which is expected to close around mid-year, has an enterprise value of $808 million. U.S. Xpress investors would receive $6.15 per share in cash, which is more than four times the price at which the Chattanooga-based company’s shares closed on March 20. U.S. Xpress has struggled in recent quarters with a combination of leverage, high insurance claims, and lagging volumes. Last fall, the carrier launched a restructuring plan aimed at cutting $25 million in costs per year.
Bringing into the fold U.S. Xpress—which would retain its brand—would add about $2.2 billion in revenues this year to Knight-Swift and grow the company’s top-line run rate to about $10 billion annually. With nearly 25,000 commercial vehicles on the road, the third-largest for-hire fleet in the U.S. would add more than 6,000 vehicles to its fleet from U.S. Xpress. If completed, the deal is expected to begin adding to Knight-Swift’s profit per share in 2024.
“Although it will take time, particularly given the current freight environment, we would not have pursued the transaction unless we were confident in achieving our return thresholds within a few years,” Knight-Swift CEO Dave Jackson said in a statement. “Beyond that, we will continue to work with the U.S Xpress team in pursuit of the performance levels of our other truckload businesses over the next several years, so the opportunity for our stockholders is substantial.”
U.S. Xpress CEO Eric Fuller and CFO Eric Peterson would leave their operating roles once the acquisition closes but plan to remain available to help with integrating U.S. Xpress into Knight-Swift. Executive Chairman Max Fuller and Eric Fuller, who co-founded the company with members of the Quinn family, have committed to rolling over part of their U.S. Xpress holdings into the Knight-Swift subsidiary that will house U.S. Xpress. They will own about 10% of that entity.
Knight-Swift was borne out of a 2017 merger of Knight Transportation and Swift Transportation, which combined the truckload carriers into what is now the third-largest for-hire fleet in the U.S. At the time, nearly six years ago, Swift was operating about 18,500 units, driven by company and owner-operator drivers. Knight had about 4,500 vehicles then.
Since combining to form a fleet of some 23,000 tractors and 77,000 trailers in late 2017, Knight-Swift Transportation has grown to a fleet of 24,900 vehicles. Its 24,724 registered trailers are the third-most of any for-hire fleet, according to the FleetOwner 500 rankings.
Jackson and his team are looking to improve U.S. Xpress’ operating ratio of more than 100% to the high 80s by 2026. Doing that would create a return on invested capital of about 15% and involve both cost-cutting and implementing Knight-Swift’s systems and best practices. Knight-Swift executives applied that playbook to the combination of Knight and Swift; adjusted operating margins at Swift have risen from about 7% in 2017 to more than 20% last year.
Leading that charge at U.S. Xpress post-closing will be Tim Harrington and Josh Smith, who are today Knight-Swift's executive vice president of sales and senior VP of finance, respectively. Harrington will be U.S. Xpress’ president while Smith will be its CFO.
This article was originally published on FleetOwner.com.
