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Why Uber Freight Paid $2.25B for Logistics Management Software Platform

Uber is boosting its logistics and transportation division in a big way by bringing in a software platform dedicated to improving supply chain performance and facilitating shipment movement of trucks, trains and other modes of transport.

Uber Freight, which connects truck drivers with shippers that need cargo delivered, is acquiring Transplace for approximately $2.25 billion from its current owner, private equity firm TPG Capital. The deal consists of up to $750 million in common stock of Uber and the remainder in cash.

The acquisition comes as heavy demand has pushed supply chains to their boiling point since last summer. In the midst of capacity constraints and escalating transportation costs, shippers now need every tool in their arsenal to ensure they are getting goods to the end consumer efficiently and providing full supply chain visibility to all current stakeholders.

“Our expectation is that shippers will see greater efficiency and transparency and carriers will benefit from the scale to drive improved operating ratios,” said Frank McGuigan, CEO of Transplace, in a statement “All in all, we expect to significantly reduce shipper and carrier empty miles to the benefit of highway and road infrastructures and the environment.”

The transaction is subject to regulatory approval and other customary closing conditions.

The companies said that the acquisition will help optimize the movement of freight across the global marketplace due to the combination of Uber Freight’s network of digitally-enabled carriers and Transplace’s shipper technology and operational solutions. The intention is to deliver a “fully scaled logistics platform” designed to meet both shippers and carriers where they are, regardless of business size or transportation requirements.

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With the deal, Uber seeks to bring greater efficiency to the domestic shipping sector but faces strong competition from traditional middlemen that match freight loads to available trucks.

In a presentation, Uber indicated that the total addressable market for global freight has reached $4 trillion, according to data from third-party logistics market research and consulting firm Armstrong & Associates Inc. But with the container capacity constraints and climbing transportation costs forcing shippers to adapt their operations, estimated managed transportation fees are expected to increase 14 percent on a compound annual basis through 2024. These are fees Uber hopes to cut down with the acquisition.

Under one roof, Uber Freight and Transplace want to give shippers access to a set of technology solutions across all transportation modes and services, bolstered by support services based on Uber’s technology and data science expertise.

Additionally, carriers should benefit by being able to collaborate directly with shippers within a marketplace and access freight across multiple expanded service lines, including intermodal, cross-border and less-than-truckload (LTL) shipping, meaning carriers of relatively small freight.

The ridesharing giant counts over 70,000 carriers in its network and “thousands” of shippers as customers, but the transaction will enable Uber Freight to serve “substantially” more customers at all levels of the freight industry, the company said. In particular, the acquisition will help Uber Freight expand its presence into Mexico and build new capabilities in intermodal and customs brokerage.

Uber Freight’s brokerage will continue to operate independently from Transplace’s managed transportation services. Transplace said it has approximately $11 billion worth of freight under its management.

This transaction is expected to accelerate Uber Freight’s path to profitability and help the division break even on an adjusted EBITDA basis by the end of 2022. Transplace is EBITDA profitable and is expected to generate $100 million in 2021. Additionally, the deal projects to save the companies $40 million in overlapping costs, expected to be realized 12 to 24 months from the transaction’s close.

“This is an opportunity to bring together complementary best-in-class technology solutions and operational excellence from two premier companies to create an industry-first shipper-to-carrier platform that will transform shippers’ entire supply chains, delivering operational resilience and reducing costs at a time when it matters most,” said Lior Ron, head of Uber Freight in a statement.

Last October, Uber sold a $500 million stake in Uber Freight to investors in a funding round led by logistics-focused private equity firm Greenbriar Equity Group LP since the business had been losing money at the time. Upon the stake sale, Uber Freight was valued at $3.3 billion with the cash infusion. Uber Freight also withdrew from a freight brokerage in Europe last year.

Uber Freight booked $302 million in revenue in the 2021 first quarter, up 51 percent year over year. Despite the growth, Uber Freight contributes just a small slice of Uber’s overall revenue—$19.5 billion in the quarter—the bulk of which comes from rides and food delivery. Uber has continued to invest in the delivery side of its business over the past year, acquiring alcohol delivery company Drizly and food delivery service Postmates.