What happened
Shares of Echo Global Logistics (ECHO +0.00%) jumped more than 50% on Friday morning after the transportation company announced a deal to be acquired by private equity firm The Jordan Company (TJC). The deal offers shareholders a huge premium, and the stock is reacting accordingly.
So what
Echo is an asset-light transportation company providing freight brokerage and managed transportation solutions for large customers. The company is a go-between for shippers and transportation providers.
On Friday, Echo announced it has agreed to be acquired by Jordan for $1.3 billion in cash. The deal is priced at $48.25 per share, a premium of more than 54% to Echo's Sept. 9 closing price. The price is also about 32% above Echo's all-time high closing price, hit in September 2018.
Image source: Getty Images.
Jordan is a veteran of transportation investment. The company already has companies including AIT Worldwide Logistics, TransImpact, and Odyssey Logistics & Technology in its portfolio. Last year it agreed to sell a majority stake in another company, Capstone Logistics, to another private equity firm.
Echo CEO Doug Waggoner said in a statement that the deal should support future growth at his company. "I'm thrilled to partner with TJC as they bring significant expertise and industry experience to enable Echo to further accelerate our success in the market," he said. "In addition, having an experienced financial partner, with resources to fund continued growth, will result in a more rapid expansion of Echo's supply chain capabilities, including all of the automation planned to enable both our people and our digital freight marketplace."
Now what
The deal is subject to customary closing conditions, including a shareholder vote, but given the premium it is hard to imagine it not going through. The companies expect the transaction to close by year's end, meaning investors will likely soon have one less logistics company to choose from.
If nothing else, the premium price suggests that investors might be undervaluing logistics providers. As companies try to navigate ever more complicated global supply chains and the need for quick shipping and fulfillment services, there is an increasing trend toward outsourcing logistics operations to specialists, which should fuel growth in the sector for years to come.
Echo might soon be taken off the table, but it might be time for investors to take a fresh look at companies including C.H. Robinson Worldwide and GXO Logistics in light of this deal.
