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The following is a script, including potential questions and answers, prepared by Bradley S.
Jacobs, managing director of Jacobs Private Equity, LLC (JPE), for a meeting held on July 28,
2011 with certain investors regarding the proposed investment by JPE in Express-1 Expedited
Solutions, Inc. (XPO) and Mr. Jacobs plans to lead XPO as chief executive officer following the
consummation of the proposed investment.
Hello everyone. Im Brad Jacobs. Thank you for being here. Some of you know me from when I built
and ran public companies. But some may not know much about me so I thought Id spend a few
minutes on my background, and then tell you about XPO and how Im planning to build it into a
multi-billion dollar third-party logistics company.
Im a career CEO. Ive founded or co-founded four companies from scratch, and each one became a
billion dollar or multi-billion dollar enterprise. The first two were private companies in the oil
industry. The second two were publicly traded companies in the waste management business and in
I co-founded my first company in 1979. It was called Amerex Oil Associates. We brokered oil
transactions, and it was similar in many ways to XPO; then it was oil, now its freight. The
operations looked quite a lot alike, if you adjust for some changes in technology. We grew Amerex
into one of the worlds largest oil brokerage firms we got it up to a gross brokerage volume of
about $4.7 billion after only four years in business.
In 1983, we sold Amerex and I moved to London, where I started an international oil trading company
called Hamilton Resources. We moved physical cargoes of oil from one place to another. The eighties
turned out to be a great time to be in the oil business. I built Hamilton up to about $1 billion in
revenues and did business in dozens of countries before I moved back to the States in 1989.
A few months later, I started United Waste Systems, which became the fifth largest solid waste
business in the U.S. I had a really simple business plan: buy landfills in small markets, buy many
of the local trucking companies that were serving those markets, optimize the truck routes,
maximize the pricing, get the margins up, and achieve size so that we could capitalize on scale.
Integrate the whole thing to run more efficiently.
The strategy worked. We went public with Paine Webber and Alex Brown in 1992 and were a darling on
Wall Street for years. Over the next five years our earnings compounded annually at around 55%, and
not coincidentally, the stock price also compounded at about the same rate. We ended up selling
United Waste to whats now called Waste Management, Inc. for about $2.5 billion, including $300
million of debt, in August of 1997.
One month later I co-founded United Rentals. I was CEO of United Rentals from 1997 to 2003, and I
continued as chairman for another four years after that. We grew the company to about $3.9 billion
in revenues at the peak of the cycle nearly $1.2 billion of EBITDA, 750 locations and 13,000
We got there partly through acquisitions, and partly through organic growth by developing
greenfield locations the same strategy used to build United Waste. We bought about two-thirds of
the branch locations and cold-started the other third from scratch. I actually like cold-starts
better than acquisitions because the return on capital is generally higher. But cold-starts require
a lot of patience because they lose money during the start-up period.
The business plan was to become the largest equipment rental company in the world and leverage our
purchasing power, branding and other advantages of size. Within 13 months we became number one,
leapfrogging over Hertz, which has been in the equipment rental business since 1965. Another thing
we did fast was that we went public we formed the company on Labor Day weekend, and we were
trading on the New York Stock Exchange by December. Merrill Lynch said it was one of the fastest
IPOs theyd ever done.
So you can
probably tell, I like to grow companies. Im very familiar with
acquisitions and building successful management teams. The teams
Ive led have bought nearly 500 companies since 1990. Not just bought them, but also oversaw their
integration and optimization.
After I stepped down as chairman of United Rentals in 2007, I started looking for my next big
thing. I studied a lot of different industries, and I ended up concentrating on transportation and
logistics. Its larger and more fragmented than the industries Ive been involved with in the past.
Its more than $3 trillion worldwide.
Once I settled on transportation, I first looked at an asset-heavy trucking company roll-up, but I
couldnt figure out a way to create the kind of shareholder value I was looking for. I wanted a
higher return on capital. Then I discovered C.H. Robinson and Expeditors International of
Washington. C.H. Robinson is the leader in truck brokerage, and Expeditors is the largest
U.S.-based freight forwarder.
I love these two companies. Theyre both non-asset based, which is a business model I understand
because of my oil brokerage days. They have no debt to speak of. They throw off free cash flow in
all parts of the economic cycle. Their returns on capital are 20% to 30%. So I started looking very
intently at brokers, and I liked what I saw.
There are four verticals within the brokerage space that, together, represent a very large
acquisition universe about $200 billion in aggregate. All four are non-asset based, meaning the
companies dont own the trucks, ships or planes. They manage the logistics of how freight moves
from one point to another by matching shippers with carriers. XPO is already in three of the four
The first is truck brokerage. Its a really attractive model, very straightforward basically,
its like a trading floor, with a bunch of salespeople talking to shippers and carriers. Our people
are matching freight loads to trucking companies and making a spread. We dont own any of the
trucks. Were brokers; middlemen between the shipper and the carrier.
Domestic truck brokerage is around $50 billion a year. Its very fragmented more than 10,000
licensed truck brokers in the U.S., and 99% of them have revenue under $200 million. In other
words, only about 25 truck brokers have revenue over $200 million. Lots of opportunities for
There should be a big opportunity for penetration as well. Truck brokerage is a classic outsourcing
service that delivers value to both shippers and carriers, and yet of the $350 billion
of freight thats moved on the ground in the U.S. each year, only around $50 billion, or about 15%,
of that freight currently goes through brokers.
I believe that the 15% penetration number is going to go up. Its a similar bet to the one I made
when I got into construction equipment rental. I thought the trend was for rental penetration to
grow because the economics of the customer favored rental, and in fact that happened.
Theres a similar incentive to outsource freight arrangements. Brokers offer a real value
proposition by excelling at their core competency, which is to efficiently manage the flow of
traffic. So theres a fundamental economic benefit that should drive penetration. In addition, I
think that as we grow XPO, our technology, size and professionalism will help attract business from
the 85% who dont currently use brokers.
If you look around the room, literally every single thing here including the clothes youre
wearing was on a truck at some point. Its an exciting landscape. The trucking industry isnt
going away, and neither is truck brokerage.
Vertical number two, freight forwarding, involves trucks as well because freight needs to travel by
ground transportation to get to an airport or seaport or rail yard. If the freight is continuing on
overseas, it also requires an ocean carrier or air carrier. Freight forwarding is a global
business, so it has the advantage of exposure to the growth rates of other countries, many of which
are growing faster than the United States. Freight forwarding is a $150 billion industry worldwide.
Its a big ocean to go fishing in.
So those are two of the four legs Im planning to grow XPO on: truck brokerage and freight
Then theres an area of the business called expedited services. Its like truck brokerage, but its
for freight that needs to be moved very quickly. XPOs Express-1 unit is already a major player in
expedited; its ranked as the fifth largest expeditor in the U.S. by the Journal of Commerce. We
get paid a premium price because the customer needs something picked up really fast and delivered
in a time-sensitive way. Theres room to grow the business through acquisitions, as well as
organically by recruiting more owner-operators. Expedited is vertical number three.
And the fourth leg, which is the only one XPO is not in yet but we intend to be is
intermodal, or rail. Im looking for a good intermodal broker to buy for a platform.
So the company is already established in three of the four legs, which gives us momentum going into
this next phase. Thats a big plus. And theres something else I like about XPO. I like the people.
They have a good reputation in the business, and theyve built a strong company culture. They just
havent had access to enough capital to grow the company on the scale I am contemplating.
They werent alone in that. Ive met with a lot of brokerage companies, and almost every one of
them told me theyd be several times the size they are if they had had access to capital. One big
issue is the time lag between accounts receivable and accounts payable. A trucker needs to get paid
quickly. Theyd like to get their money in a week, which is faster than the shipper will pay. The
shipper might pay six to eight weeks down the road. Thats not good enough for the trucker.
The key is to fund that gap. A lot of brokers hit a ceiling where they cant finance growth. There
used to be hundreds of banks lending to these small companies, but that kind of lending decreased
dramatically starting in 2008. It can be a home run for a capital-constrained company like that to
sell to XPO, because we can provide both working capital and growth capital.
We believe that we can create shareholder value by acquiring companies on accretive terms, and then
enhancing returns by growing these operations organically through the addition of more salespeople.
The salespeople, in turn, should be able to outperform because they have access to the resources of
a larger organization with an expanding network of relationships. Its a win-win.
very excited to embark on our efforts to build a much larger and even
more profitable business through the opportunities available to the
Potential Questions and Answers
Can you walk us through how you envision your capital structure?
Well have over $70 million of cash on the balance sheet at closing. We should be able to spend
that on sensible acquisitions within a reasonable period of time. Depending on whether we buy
smaller companies or larger ones, and how we structure the purchase prices, we expect to get an
additional $8 million to $14 million of EBITDA from that spend. Theres not a lot of debt right
now; about $3 million. Theres some goodwill on there. The biggest asset is receivables.
What is your line of credit?
XPO presently has a $10 million line of credit. That could be increased, though.
What about leverage?
We were highly leveraged in the last two companies I ran. This time its a non-asset business, so I
dont see the justification for the same level of leverage right now. Im happy to borrow against
the receivables, though, because the write-offs in this industry are typically less than 1%. In
addition, Ive had banks propose lines of credit of up to three times EBITDA, but I havent made a
final decision about what the total leverage should be.
Whats your timeframe for spending the $70 million?
Ill probably want to do one or two acquisitions later this year. That would double the size of the
company. Then I might stop a bit, integrate, transfer best practices, optimize IT, arrange
financings. Its a very disciplined process. Bite, digest, reassess.
What kind of multiples are these companies going for?
Its a bell curve. The bulk fall into a band of six to eight times EBITDA, which is where I have
the most interest. Smaller companies go for about four or five times EBITDA. And there are a few
gorillas I could buy at multiples of eight to 10 times EBITDA. These are higher EBITDA multiples
than Im used to, but because of the minimal capex requirements, theyre actually lower multiples
of free cash flow.
What sort of multiples were they getting a few years ago?
The multiples have been pretty stable. You see a fairly delineated band of acquisitions based on
What do you look for in a target acquisition?
I want to buy companies with good growth trajectories. The targets dont have to be huge. In fact,
in truck brokerage, there are only about 25 companies in North America with revenues of over $200
million. Im mainly interested in smaller companies between $25 million and $200 million gross
revenue, thats my sweet spot. I want to take those companies and grow them. Its usually easier to
grow a $50 million company five-fold to $250 million, than to take a company doing $500 million and
get it up to $2.5 billion. But there will be exceptions to the rule, and every deal is unique.
Acquisitions arent cookie cutter. The common denominator is that I want to buy from people I like,
and who have integrity. I want to take care of the people whose businesses Im inheriting. Many of
the key risks of a business plan like this come down to people.
Where are your acquisition targets located?
The 10,000-plus brokers I talked about are everywhere. Metro areas, small towns. A lot of them work
out of inexpensive office space around transportation hubs: Atlanta, Chicago, Dallas, Jacksonville,
Charlotte, Memphis but theyre literally all over the country. Remember, the majority of this
business is done over the phone or electronically, not in person, so you dont necessarily have to
be based near the customers.
How do you choose target acquisitions?
Due diligence. Ive talked with about 120 companies. I have a pretty good nose for this. I also
have industry experts working with me, together with boutique M&A firms.
What were the best and worst acquisitions of your career?
The worst strategic one was a whole series of acquisitions where we got off the path of equipment
rental and bought into highway technology, which is roadwork signs, barriers and highway striping.
We bought all these highway companies on the expectation that infrastructure spending would
significantly increase when the government implemented the TEA-21 bill. But many of the projects
stalled when the states couldnt come up with their share of the funds, and the revenue growth just
wasnt there. Also, the IT system that we were using to run the rest of the company didnt fit the
highway tech operations. We ended up selling that business at a loss of a few hundred million, so
it definitely wins the booby prize.
The best acquisition may have been a Michigan landfill we bought at United Waste for about $4
million. The EPA awarded us a major expansion, and a year and a half later it was worth $40
million. Another home run was a software company called Wynne Systems that we bought early on at
United Rentals. They made powerful software with the politically incorrect name of RentalMan that
we used to integrate all the rental businesses we rolled up into the company. We couldnt have done
the hundreds of acquisitions we did without RentalMan.
How will you grow a company once you acquire it?
I think we can create substantial value by financing the growth of these businesses after we buy
them. Working capital and growth capital are pretty close to a magic bullet. Theres not much
capex, but you have to finance the receivables and you have to bankroll the new hires. Hire hungry,
talented salespeople at a low base and a big upside incentive, fund their training for a few
months, and its not that hard for the winners to build a million dollar book after a year or so.
In a nutshell thats how you ramp up in this business. If you buy a brokerage with $30 million of
revenue and you add 30 to 40 bodies, you can double the revenue in time. Ive looked at many
companies that have executed this business plan, but most of them dont have the capital to sustain
Do you plan on keeping the Express-1 brands?
One of the items that will be in the proxy for shareholder vote is a proposal to rebrand the parent
company from Express-1 Expedited Solutions, Inc. to XPO Logistics, Inc. The expedited unit, which
is headquartered in Buchanan, Michigan, will still be called Express-1, Inc. Our freight forwarding
operations, based in Downers Grove, Illinois, will remain Concert Group Logistics, Inc. And the
truck brokerage unit, which is based in South Bend, Indiana, will keep the name Bounce Logistics,
Inc. Only the parent will change to XPO Logistics.
Where do you expect XPO to be in the future in terms of revenue and EBITDA?
Id like to be at $4 billion to $5 billion in revenue and hundreds of millions in EBITDA. There are
a lot of acquisition opportunities out there. If I had a billion in cash, I could spend it on good
acquisitions within a few months. However, I expect our pace will be
more measured than that.
Do you view your plan as easy to accomplish?
No, its not an easy plan to execute; its not for the fainthearted. Theres a lot you can mess up
with acquisitions and integration. Acquisitions come with headaches. But the biggest challenge can
be managing the human aspect its important to watch out for the well-being of the people who
work for the companies youre buying. Its a change for them, and it has to be a change for the
better. One big thing Ive learned from the hundreds of acquisitions Ive been involved in is to
sincerely respect the employees, be visible, do town hall-type meetings. Solicit their advice;
employees have a lot of great ideas. And dont just go through the motions think seriously about
the feedback you get. I have a lot of experience in creating this kind of healthy, inclusive
Can you walk through why bigger is better for a 3PL?
The bigger you are, the less business you have to turn down because you cant find the capacity
and when you do get business, you should be able to find less expensive solutions because you have
a larger universe of carriers to choose from. There are margins to harvest if you are a bigger
player. Suppose Im a broker and I have a shipper who pays me a thousand bucks to place a
truckload. I book the load for $850 and make a $150 spread. But if I become part of a bigger
organization, I can tap into everyone elses carrier base as well. Maybe that lets me locate
a carrier who is happy to take the load at, say, $800. Now I have a 20% spread instead of a 15%
There are other benefits to size for example, you turn down less business. It was kind of
shocking to me, when I started studying the industry, to see some companies turn down as many as
one out of five customer calls. If you cant fill a load you lose the sale, and youre not at the
top of the customers call list anymore. The turn-down rate should decrease as the universe of
accessible carriers increases.
With more volume, we should also be able to negotiate better discounts with the carriers, which
should improve margin from another direction. And thats in addition to leveraging scale in areas
Do you think more private equity groups will follow you into the industry?
I expect more consolidation, but there arent a lot of PE firms with my serial acquirer approach.
What Im doing takes a higher tolerance for risk and quite a lot of consolidation expertise. There
are a lot of moving parts to this particular business plan. I dont see droves of people copying
me. There have been a few dozen PE investments in this space already, and many have been quite
successful. But the typical plan has been to buy a company or two, add financial leverage, strip
out the costs, play the cycle and sell it at the right time. Im trying to do something more
Why do truckers use brokers?
Look at it this way: 96% of trucking companies in the U.S. have fewer than 20 trucks, according to
the American Transportation Association. Only about one out of every 10 trucks on the road is owned
by a public company. If you own a couple of trucks, you cant afford to have people on the phone
all day trying to find you freight. Its also not your core competency. Using a broker is a good
value proposition for most carriers its the most cost-effective way to find freight.
Why do shippers use brokers?
Some large shippers manage freight logistics very efficiently themselves, like Walmart. But once
you get past the top thousand corporations, its often handled willy-nilly. Most shippers dont
have a department of people to check out carrier prices all day long. They may have a handful of
trucking companies they use, and when they have product to move they call two or three trucking
companies and try to get a good price. Thats not efficient. They should be calling 3PLs like XPO
and tapping into a network of tens of thousands of carriers. Thats one of the reasons why I
believe that, in the future, brokers will handle much more than 15% of the logistics. There are
millions of shippers in North America that need transportation solutions.
Will you target certain types of shipper customers?
We go after all kinds of customers. The three main sectors are retailers, manufacturers, and supply
chain logistics management companies.
What is your management team going to look like?
I have a team from XPO that I like and respect. A couple of them will be taking on some different
responsibilities, more involved with acquisitions. Ive hired Spencer Stuart and Heidrick &
Struggles to find a COO, CFO, chief acquisition officer, chief information officer, controller and
vice president of investor relations. Ive told both search firms to show me only world-class
What will be your largest operating cost?
When youre a non-asset-based 3PL, your largest cost is sales compensation. And compensation is
mostly variable, because most of it comes in the form of incentive bonuses. If revenue comes down,
the house doesnt get hit as badly as an asset-heavy, fixed-cost business does. On the flip side,
though, you dont get as much operating leverage in the upswings. The profits are less volatile
throughout the cycle. Most brokers stay profitable and cash positive even during downturns.
What is the profile of a salesperson you would recruit?
Its a business where you have to make 99 calls a day to do one or two deals. So you have to hire
people who psychometrically test high on need to win and low on need to be liked. A salesperson
will have a base of $25,000 or $35,000, but can make many times that amount on the incentive
compensation. Once you get the right people in the system and integrated on the right IT, it can be
When we do an acquisition, were buying a list of carriers and shippers, but were also acquiring
the people who have those relationships. The risk is if many of the people leave after the
acquisition. Weve got to treat our people right financially, and make the atmosphere one that
people gravitate towards. If we have a culture that genuinely respects our employees, and pays them
competitively, theyll want to stay.
Youve made a point about the importance of IT. Why is that?
Its the backbone. IT allows people to do their jobs more professionally and use metrics as
benchmarks. It gives you an accurate financial grasp of the business. C.H. Robinson and Expeditors
have stupendous IT. The best-run companies tend to customize the software for their own businesses.
Well probably go that route.
I like to zero in on a few key metrics that really matter to the people on the front lines. Well
have daily metrics for gross profit generated, minutes spent on the phone, turn-down rate, profit
per load about a dozen KPIs. At United Rentals, it was much more complex than anything well be
faced with at XPO. We had 750 locations at United Rentals and we had to figure out how to get all
of them to talk to each other. Im used to tackling complex IT challenges.
How do you compare the roll-up opportunity in logistics to other industries?
I would say that at this point in time, from my perspective and Ive made a career of studying
almost every roll-up opportunity this is the last large opportunity to be found in an industry
that is fragmented and growing, offers a competitive advantage of size, has a large imbalance
of sellers to buyers, with hundreds if not thousands of good companies that can be bought at
significant discounts to our expected cost of capital. XPO is the most exciting venture Ive taken
[End of script]
Additional Information and Where to Find It
In connection with the proposed equity investment by Jacobs Private Equity, LLC, the Company filed
its preliminary proxy statement and form of proxy with the SEC on June 30, 2011. When completed, a
definitive proxy statement and form of proxy will be filed with the SEC and mailed to the
stockholders of the Company. THE COMPANYS STOCKHOLDERS ARE URGED TO READ THE DEFINITIVE PROXY
STATEMENT REGARDING THE PROPOSED EQUITY INVESTMENT BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION.
The Companys stockholders may obtain, without charge, a copy of the definitive proxy statement
(when available) and other relevant documents filed with the SEC from the SECs website at
www.sec.gov. The Companys stockholders also may obtain, without charge, a copy of the
definitive proxy statement (when available) and other relevant documents by directing a request by
mail or telephone to Express-1 Expedited Solutions, Inc., Attn: Secretary of the Board of
Directors, 3399 South Lakeshore Drive, Suite 225, Saint Joseph, Michigan 49085, telephone: (269)
429-9761, or from the Companys website, www.xpocorporate.com.
Jacobs Private Equity, LLC and the Company and its directors and officers may be deemed to be
participants in the solicitation of proxies from the Companys stockholders with respect to the
proposed equity investment. Information about the Companys directors and executive officers and
their ownership of the Companys common stock will be set forth in the definitive proxy statement
regarding the proposed equity investment and is set forth in the proxy statement for the Companys
2011 Annual Meeting of Stockholders, which was filed with the SEC on April 29, 2011. Stockholders
may obtain additional information regarding the interests of the Company and its directors and
executive officers in the proposed equity investment, which may be different than those of the
Companys stockholders generally, by reading the definitive proxy statement (when available).
Cautionary Statement Regarding Forward-Looking Statements
The materials included herein contain forward-looking statements. Statements that are not
historical facts, including statements about beliefs or expectations, are forward-looking
statements. These statements are based on plans, estimates and projections at the time the
statements are made, and readers should not place undue reliance on them. In some cases, readers
can identify forward-looking statements by the use of forward-looking terms such as may, will,
should, expect, intend, plan, anticipate, believe, estimate, predict, potential
or continue or the negative of these terms or other comparable terms. Forward-looking statements
involve inherent risks and uncertainties and readers are cautioned that a number of important
factors could cause actual results to differ materially from those contained in any such
forward-looking statements. Factors that could cause actual results to differ materially from those
described in the materials contained herein include, among others: uncertainties as to the timing
of the proposed equity investment; the possibility that competing transaction proposals will be
made; the possibility that various closing conditions for the proposed equity investment may not be
satisfied or waived; the possibility that the warrants contemplated by the proposed equity
investment, if issued, will not be exercised; general economic and business conditions; the
potential inability to identify and consummate acquisitions and arrange adequate financing; and
other factors. Readers are cautioned not to
place undue reliance on the forward-looking statements included in the materials contained herein,
which speak only as of the date hereof. Neither the Company nor any other person undertakes any
obligation to update any of these statements in light of new information or future events.