Knight Swift Inks Deal to Acquire Truckload Carrier U.S. Xpress

Diversified trucking and logistics specialist Knight-Swift KNX agreed to acquire public truckload peer U.S. Xpress for $324 million (equity value) in a mostly cash deal. With an enterprise value near $800 million, the deal carries an EV/EBITDA multiple of more than 13 times our own 2023 estimate for U.S. Xpress. That said, the multiple could be closer to 5 to 6 times our preliminary 2024 EBITDA estimate for U.S. Xpress, which incorporates a better trucking backdrop and initial synergies. Following the transaction, Knight’s pro forma leverage could exceed 1.7 times EBITDA, though free cash generation should gradually bring that down. Management expects the deal to close by early third quarter.

U.S. Xpress ranks among the 10 largest full-truckload carriers, posting revenue of roughly $2.2 billion in 2022. At first glance, it looks to us like the firm is a carrier of average- to below-average quality, considering it generated a total operating ratio (expenses/revenue) near 101% in 2022. That said, Knight successfully applied its industry-leading execution to Swift (acquired in 2017), bringing Swift’s profitability levels close to those of its own over time. Our initial impression is that Knight should be able accomplish something similar this time around.

Management expects to bring U.S Xpress’ OR down (lower is better) into the high-80% range by 2026. Running the preliminary numbers through our DCF model, and including deal amortization, our initial take is the deal could prove modestly accretive to equity value, and we expect to boost our $53 fair value estimate slightly, by 4%-6%.