Two solid ‘yes’ votes for Echo Global’s acquisition: Moody’s and S&P

Moody’s (NYSE: MCO) did downgrade one debt issue, but the move is more technical in nature, made necessary by a change in the combined company’s capital structure.

“We believe the acquisition will slightly improve (Echo’s) credit metrics based on ITS’ EBITDA contribution (and a somewhat favorable funding mix in our opinion), offsetting Echo’s slightly weaker-than-expected recent performance,” S&P said in its report on the affirmation of the rating.

Both ratings agencies saw improvement in both the debt-to-EBITDA ratio and projected free cash flows at Echo Global after the ITS acquisition. 

The S&P Global analysis said it sees the ratio at Echo Global to sink to the “low 6X area” in the next 12 months. The combined company would have had a 2025 ratio of 6.8X, while Echo’s standalone leverage in 2025 was about 7.1X, according to S&P Global estimates.  

The improvement in the ratio, S&P said, will come from “recent business wins at ITS and the full-year contribution from Echo’s August 2025 acquisition of Freightsaver.” That company is a California-based 3PL.

Improved EBITDA at Echo

The EBITDA part of that ratio, according to S&P Global, is that it sees that figure rising by $114 million based on the agency’s estimates, “meaningfully expanding the company’s pre-acquisition S&P Global Ratings-adjusted EBITDA (which was) estimated at about $133 million for 2025.”

The agency has what it said was a “cautious view” of ITS “because a majority of revenue is exposed to consumer-related end markets.”

“Echo will get to diversify its customer end market from ITS’ large high-volume e-commerce and Consumer & Retail segments, in contrast to Echo’s small and medium customers in the Manufacturing and Wholesale segments having transactional live-freight shipping requirements,” S&P Global said.

The ratings agencies do not generally disclose revenue and profitability numbers in their reports, but some data does occasionally see the light of day in their analyses. 

For example, S&P Global said Echo’s brokering revenue will rise to $3.9 billion from $2.7 billion at present. “The revenue increase includes $900 million from the higher-margin (30% higher gross margin per load compared with traditional freight brokering) and faster-growing drop-trailer capabilities through ITS’ owned/leased pool of 5,000 trailers,” the agency said.

Significant gain in free cash flow

Free cash flow at Echo, according to S&P Global, had been estimated at $10 million for 2026, “which had the potential to modestly weaken Echo’s liquidity,” the agency said. But now given debt refinancing that was undertaken as part of the acquisition, plus contributions from ITS, S&P Global now expects free cash flow of approximately $30 million in 2026 and about $50 million in 2027.

Moody’s echoed some of the same themes as S&P in noting that it had raised the outlook to positive. It said the move was undertaken because of “our expectation that the combined freight service offerings of Echo and ITS will deliver earnings growth to support improved debt metrics and lead to positive free cash flow generation.”

Moody’s said both companies grew their freight volumes in 2025. “The companies’ combined market position and the opportunity to cross sell should support above market growth when broader freight market conditions improve,” the agency said.

S&P Global also does not see Echo Global as necessarily being done in the M&A field. “We still expect Echo’s financial policy will include opportunistic acquisitions,” S&P Global said. “We expect Echo will continue to opportunistically deploy cash and could increase leverage to pursue acquisitions in the future.”

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