Ryan Petersen: Flexport sold revived Convoy freight platform to DAT for a reported $250M after buying it out of bankruptcy for far less

They have a 5-year warranty, 30 night risk-free trial, free returns, free shipping. And we have our first guest of the show in the reream waiting room. Let's bring in Ryan Peterson. How are you doing, Ryan? You look fantastic. Fantastic. Yeah, whatever lighting you got going on looks super cinematic. Good job.

Good stuff. Oh, really? I'm in a hotel room in Las Vegas. Uh it's the big window. There's a big window to your left and I like it. It looks awesome. It's the uh Arya Arya city center right over there. Very nice. Completely blown out on the Are we getting Are we getting a flexport orb this year?

Oh yeah, people have been bragging. Oh, the sphere. Yeah, the sphere. The sphere. Man, I want to do it. This might be the first uh the first gong ringing for a sale of a company. Is that what's going on? Break us down. Break the news down for us. Exactly what happened and is this a gongw worthy moment?

And full backtory. This is like six questions in one. Just cook. Take us on a journey. Um, so we sold our convoy business to DAT. Okay. Uh, and it the we're for some reason we're not supposed to talk about the numbers involved. So you but I have they have been reported.

I have not uh I have not protested the numbers that have been reported. So um it was very good return for us. We bought this business out of bankruptcy 18 months ago from a bank. Yep. Uh a little over 18 months ago.

And one thing that's been reported I feel like wrongly where I thought I'd come on and clear the record is like it's been reported is that we made this amazing trade like we bought this thing and then we sold it for way more than we bought it for. Uh made a lot of money.

That is true but it was not a trade the way you buy like a stock and do nothing and you make a bunch of money like you're some kind of genius. This was an act of entrepreneurship and business building. We bought a a bankrupt we only bought the asset. No employees, no customers, no transactions, no nothing.

Um, had to go recruit the former employees of Convoy to come back to work for us. Wow. We had to recruit the carriers. So, the way the Convoy business works is that at one at peak, this thing was worth $3. 8 billion, by the way. Um, and you can go read what we bought it for. It was a lot lot less.

Uh, and but it again, it was nothing there. We the team did an incredible job like real business building here to go get all those carriers back. So the way it works, you have at at peak they had 400,000 drivers on a mobile app, truck drivers. Yeah.

Uh well, we brought it back to life and those drivers, many of them hadn't been paid by the former ownersh. There was really like no transaction volume. Nothing happened. We had convinced them to come back. It was kind of solving the cold start problem of any marketplace.

Like how do you get loads in here to attract the drivers, the drivers to attract the loads? Pretty hard problem when you start from zero. Um, and Flexport is not a big truck broker. So, we didn't have the demand to do that, to bring it back to life.

So, what we did, we completely pivoted the business model to be a neutral platform to say, okay, other truck brokers can come in here and post their loads and bring it and we'll have the drivers come back to serve those loads and and get the flywheel spinning.

So, that was the the change to the business model that we made. And 18 months later, we had hit real liquidity kind of escape velocity.

We're uh probably on track to have like more than a hundred truck brokers by the end of the year, each posting thousands of some of them tens of thousands of loads to the platform, some over 100 thousand. Uh and then the drivers would sign up.

You know, if you have demand, the drivers will come and they they all still had the mobile app. They liked Convoy. They wanted to come back if there were loads. Um so, but the moment we pivoted it away from serving being a truck brokerage, it was kind of also not a strategic fit for Flexport.

like our job is to serve importers and exporters and companies with cargo to move, not to serve other truck brokers with whom we sort of compete. So, it was like this strategic mismatch was always an afterthought when I talk about our mission and what we're going to do and why we're doing it. Be like, "Oh, yeah.

" And we also have this like business that serves truck brokerage, which is an incredible business and it deserves to be front and center. So, we sold it to DAT. DAT is the load. It used to be called Dial Truck, which I love. It tells you their heritage. Um, been around forever.

Yeah, they're kind of the 800 pound gorilla in load boards. What load board is like if you have you're a truck broker yet you can't call every truck driver in America to match your load y to pick it up.

And so if you don't have a contract or you don't have relationship and none of the carriers you work with, the people that operate trucks is able to service your load, you'll post it to DAT and then hope that somebody's kind of like Craigslist for freight.

Uh well, like Craigslist, you know, there's they've got um it's hard it's a hard problem to control like who's actually picking up the freight. Is it the Eastern European mafia that just stole your stuff and disappeared? Like some of that goes on.

Uh, and I just I just saw I just saw a a friend's company this morning had somebody show up at his warehouse, looked completely legit, like an official kind of um kind of a distributor kind of purchase order and just like got over a million dollars of product and then just disappeared. No way.

And I think that I'm sure I'm sure that happens like quite frequently. It probably is through this kind of scam um where people and it's like now convoy built incredible machine learning based detection algorithms for this uh to go like do pattern matching and find it.

So we've actually um o over the 18 months that we operated the business doing hundreds of thousands of loads zero incidents of freight and tons of busting people.

We we even got a guy trying to commit freight fraud uh from the courthouse and it was a known actor who was like connected through these pattern matching algorithms. And so they and we have GPS coordinates because you're doing it on the mobile app. So they're like, "Oh, this guy's at a courthouse right now.

" So we looked up his records and he was facing trial for freight fraud. No way. Freight fraud. Wow. That is crazy. So yeah, it's it's really rampant and that I I think that's going to be one of the biggest wins from all this. I think DAT is going to make a ton of money doing this.

Better the business model, making a percent of every transaction instead of currently they just sell subscription. So DAT is part of Roper, by the way, public company. Their stock didn't move on the news. I think Wall Street didn't quite understand how big this can be for them. Sure.

Um not not investment advice, but but there's something there. Uh it but the big and flex does great. We we got uh put a lot of money on our balance sheet, help us on our mission. the Convoy team is going to get to scale and instantly put test their algorithms at scale, right?

Test the matching like because DAT is the monster. Like something like 40% of all the truckloads run on the DAT load board. Yeah. Wow. And so piping them through convoys like let's see how that works. It's going to be awesome. But the industry in general, like yeah, I think it's a massive way to combat fraud.

uh truck brokers will really benefit because about 30% of the expense structure of a truck brokerage is of an FTL brokerage is um what they call carrier sales is these are the guys that are making phone calls to carriers to try to cover the load to say okay I got this load I got the customer and let me find a trucker that'll move it for me um and with convoy that goes away you don't have to spend that money um or those people can work on harder loads and more interesting problems go do more sales So, um, huge win for the industry.

I think probably the biggest beneficiary of this all. So, yeah, pretty proud of how it went down. How did Convoy go bankrupt originally? It was I I remember kind of watching that unfold quickly and then you guys moved super fast on it from from what I remember. Yeah. Um, a lot of theories.

I'm sure that, you know, it' be interesting to get the Convoy founder Dan Lewis on your show at some point, see what his ideas are, what what he thinks, where he went wrong. Um there's sort of the proximate cause which is you know every company goes bankrupt for the same reason you run out of money.

Um they they were in a um they were in a transaction um they were they had agreed to sell the business to a large competitor of theirs big public company.

I'll go unnamed I don't want to get sued but big company um who they should have they should have done and it was going to but because they had a deal to sell and then that big company unwound it.

He had not gotten proper y he hadn't gotten proper board consent and he had a couple activist investors who didn't want didn't like the deal. Interesting.

And backed out with and convoy had two weeks of cash left and they were supposed to close but like you never should have got yourself into that situation in the first place. Um so especially you know you kind of allow your competitor to do that for to you like don't let a win for the Yeah.

we can we can buy you for a lot of money or we can just put you out of business and then we're just like you know more strong.

So how did this particular so your your your big I think that's that all of that is sort of proximate causes upstream of that go back a few years my my if I if I ran the business it would have been way more salesheavy I think they were really product and tech driven like we're we're doing hundreds of thousands of loads through convoy only 2% of them a human has to touch at all the tech is dialed so like but You were able to bring your sales force to bear pretty quickly to ramp up the business.

And just in general, like it's kind of like a a it's a Midwest kind of steak dinner industry. Totally. Yep. And they're like West Coast product people. Yeah. Yeah. Yeah. No. No. That makes sense. How did I needed a little more steak dinner action? How did this particular steak?

It's all about this stake dinner capital of the world. How did this particular deal come together? Is this like there's an investment bank involved? Is this like founder to founder deal? like uh like walk me through a little bit of the anatomy of like how you sell what is essentially like a subsidiary.

I've never been in that situation. I think a lot of founders haven't been in that situation. Yeah. Um well great businesses are bought and not sold. So totally they approached us.

Um I think they they started to realize we were getting escape velocity on the marketplace and that at scale that would be quite threatening to them. Sure. Uh because you don't need to go to the subscription and uh load board if you load is already covered. Sure.

uh via our platform and our business model now that their business model I think is better uh at scale when it works because you're taking a percent of every transaction instead of just a monthly fee. Um that's cool. Like by my math, very amateur math, I think this could add like5 billion dollars in EBIT. Wow.

To the business. Like this is crazy. Yeah. So, it's very valuable. I'm sure that's off, but um but like order of magnitude is right. Um and so I think they I don't know how they they decided but there's a relationship.

Uh D is a big player uh in the industry obviously and our team convoy team was just connected to them and they were like hey we got this inbound and they're they're pretty interested in selling the business. What do you think Ryan?

I'm like well I have to pay a lot money for it because I really like it and but the more we looked at it the more it was like dude it's worth more to them. I mean I think that's the core in any M&A transaction. It needs to be worth more to the acquirer than it is to the yeah totally seller.

Uh so that there's room there's grounds there for a negotiated price a settlement and we found a good one. So well congratulations on the deal. Let's ring the amazing amazing work from the team. Super impressive. We need to warm this up. Yeah. We've been told we got to warm up the gong.

We're going to break it if we hit it too hard. There you go. [Music] People are very people are very opinionated about about the gong hits. We we really do our best here. Super super I mean uh given given, you know, everything that that Flexport has navigated through the last few years.

It's pretty incredible to just casually as kind of like a little little side project buy, you know, just turn it around and sell it fantastic in such a short period of time. So nice work. You're a testament to the Convoy team, frankly.

like u and I hope they all that we we feel like we've put them off in a in a good place here u financially but like the potential is all what can they do for DAT and how does DAT make the best of this right um because man if you can pipe all that volume through this platform you have the potential to generate something really really massive it's exciting well thank you so much for stopping by thanks for taking some time out of your day in Las Vegas good luck with the rest your steaks out there and enjoy the steak.

I will be having a steak dinner tonight. Actually, Top Golf with the customers. So, that's Top Golf steak. You love steak.