Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of XPO Logistics Inc (NYSE: XPO) jumped as much as 14% today after the company announced a big acquisition.
So what: XPO Logistics is buying Norbert Dentressangle for a total cost of 3.24 billion euros ($3.53 billion), including debt. The deal is priced at 9.1 times estimated 2015 EBITDA of 357 million euros ($388 million) and XPO expects the acquisition to triple its EBITDA run rate to $545 million annually.
Now what: This is a big move into the European market, and XPO's management told Bloomberg that this might be just the start of its acquisitions. Considering the size of the deal and the debt XPO will have to acquire to make it happen, this also increases the risk for the stock going forward.
Management said in the announcement that Morgan Stanley has provided $2.6 billion in financing in addition to XPO's $1 billion in cash, so the deal can be paid for, but at the end investors will have a highly leveraged company rather than one with a strong balance sheet. That alone is keeping me from buying today.
Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends XPO Logistics. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.