Home Depot Considers Buying $9 Billion XPO Logistics So Amazon Doesn’t

Late last month, a report published in Recode indicated that two giants from different sectors, retailer Home Depot and global freight transportation and logistics services provider XPO Logistics, maybe future teammates, with the report saying that Home Depot “held internal discussions in recent months about a potential acquisition bid for XPO Logistics (XPO).

While neither company commented publicly, Recode said that if Home Depot were to make an offer, a key driver of it would be to keep Amazon from scooping up XPO, which has also vetted acquiring XPO, according to a source cited in the report.

The report also noted that Recode was unable to confirm Amazon’s interest in XPO or if Home Depot or Amazon spoke with XPO, it stated that Home Depot and Amazon have each been XPO customers.

Since its inception in 2011, XPO has been the most active company in logistics, when it comes to M&A activity. In that time it has acquired nearly 20 companies and has grown both through expansion, as well as organically while paving out its path to being a global and full-service transportation and logistics services provider.

Read: XPO Logistics Expands Last Mile Network

What’s more, as noted in a research note by Stifel analyst John Larkin, the company has an “unused $8 billion war chest,” while observing that unless the XPO M&A team cannot find a high quality, sizable, reasonably priced ‘needle mover’ that synergistically complements its existing operations, XPO remains at least a couple of years away from seeking what he called a full-blown exit strategy.

And the analyst also pointed out that it would be surprising if XPO derived more than 3-4% of its overall revenue from Home Depot, which leaves the question of where the synergies of an XPO-Home Depot deal would come from.

A separate Wall Street research note issued by Morgan Stanley said it may be “redundant” for Home Depot to acquire XPO on the heels of its recent fulfillment announcements, focusing on building out its own internal supply chain to address same and next day and bulk item logistics.

“We see the logic in HD looking at other logistic companies to either acquire or learn from as it attempts to extend its omnichannel capabilities,” it said. “But in light of HD’s detailed strategy to architect its own network, purchasing a separate logistics operator may be redundant.”

Taking that a step further in addressing what this type of deal would mean for freight transportation, the firm explained that the value-added parts of freight transportation and logistics are potentially very valuable to large shippers, technology giants and other entities looking to take control of the cost, data, and quality of their logistics operations.

But it also came with the caveat that for incumbent freight players it also means loss of insourced volumes, more well-funded competitors in the space if opened up to 3rd parties and reduction in the value of the more commoditized parts of the business.

“We continue to believe that technology - whether autonomous trucks, Uberization of freight, blockchain or e-commerce/omnichannel solutions - will continue to be where the value is created and truck brokerage/freight forwarding, parcel delivery and traditional trucking will see the most value destruction,” it said.

Not to be overlooked in this speculation is XPO’s leading position in the last-mile space, which has been spurred on by the ongoing advent of e-commerce activity, with consumers getting more comfortable ordering heavy goods and appliances online.

Industry stakeholders said on Truckingboards.com that if Home Depot had XPO in the fold it could help to level the playing field with Amazon, whereas if Amazon acquired XPO, Home Depot would lose significant scale and consumer value.

In a May 2017 interview with Logistics Management, Charlie Hitt, president of XPO’s last mile business unit said that the impact of a rapidly growing e-commerce market on the last mile sector, especially for heavy goods, is something that cannot be overstated.

“Traditional brick and mortar retailers are expanding out with more e-commerce offerings, and they want it to be seamless and they want it fast,” said Hitt.