Dive Brief:

• M&A now accounts for 10% to 15% of XPO CEO Brad Jacobs' focus, according to a research note from Morgan Stanley emailed to Supply Chain Dive.
• Jacobs spent about half of his time on M&A a year ago, but this dropped to almost none after the company's stock price fell heading into 2019, and "buybacks were clearly the better use of cash," the note reads.
• The company was considering acquiring larger companies when it was looking at deals a year ago but is now looking at smaller possibilities, according to the note, citing meetings with XPO management. XPO reportedly said it would not raise leverage "meaningfully" or issue equity to fund any upcoming M&A.

Dive Insight:

Jacobs was asked about this strategy on the company's most recent earnings call this past August: "We may decide to err more on the side of reducing debt or more on buying back shares or returning to M&A or increasing in high ROI CapEx," he said on the call.

XPO has been dealing with the loss of its largest customer — Amazon — for the last couple of quarters and has seen revenue growth slow as a result, but Jacobs said in August it was making progress in replacing this revenue. XPO reported a year-over-year decline in revenue in its most recent quarterly earnings. But it did see increases in earnings per share.

Morgan Stanley's note said XPO will be less focused on freight forwarding when looking for M&A targets, saying the company is concerned about potential disruption. Deals involving truck brokerage, though, are considered neutral as it believes gross margins will decline in this area but automation will help with the cost going forward.

XPO has a history of M&A. In 2015, it penned a $3 billion deal to acquire Con-way, one of the largest carriers in the country at the time. That same year, it spent another $3.5 billion to acquire Norbert Dentressangle, a European logistics company.

Morgan Stanley, which released the note last week, served as an advisor for XPO in both of these 2015 deals.

The investment firm noted technology is another a major focus for XPO. It sees technology investment as a way to lower its $6.5 billion in labor spending through the automation of both factory work and truck driving.

This is one area where multiple deals have unfolded in the industry over the last couple of years. Amazon has invested in multiple robotics companies. And Shopify announced a $450 million deal to buy the robotics company 6 River Systems earlier this month.

"Ultimately, [management] sees potential for XPO to become a network/platform in an autonomous world connecting a fleet of next-generation assets to a cross-sector digital custom network," the note reads.