You can sell a FedEx Route with the assistance of a business broker, although the precise sales journey depends on your specific situation and company details. This review discusses how to determine your value and sell a FedEx Route.
The trucking industry in the United States is a large, sustained and critically important segment of this nation’s economy. In 2022, the trucking industry generated nearly $900 billion in revenue, and more than 80% of the nation’s total freight bill was for trucking, according to the American Trucking Association (ATA). While the trucking industry is a massive operation with millions of trucks on the road and millions of drivers employed, the overwhelming majority of trucking companies are small businesses. The ATA estimates approximately 96% of these companies operate less than 10 trucks.
FedEx is a $93 billion company divided up into seven primary business segments – FedEx Express, FedEx Freight, FedEx Services, FedEx Logistics, FedEx Office, FedEx Dataworks and FedEx Ground. Every one of these segments has its own unique market position and offering, with FedEx Ground providing “low-cost, day-certain service to any business address in the U.S. and Canada, as well as residential delivery to 100% of U.S. residences through its FedEx Home Delivery Service,” as described on the company’s website.
FedEx Ground ultimately is responsible for taking the package out of a customer’s hands, routing it to a local hub, sending it over-the-road to a different hub, then disbursing it from there to its destination. It does this through a network of 40 hubs, 600 operating facilities, 215,000 employees and 100,000 vehicles to deliver more than 10 million packages per day. FedEx Ground touches almost every American, and it shows in its financials. According the company’s 2021 annual shareholder report, FedEx Ground accounts for nearly $31 million, or approximately 33% of FedEx’s total revenue, and it has the highest operating margin of any segment in the company.
How Do You Value a FedEx Route?
FedEx Ground linehaul contractors understand how unique and valuable their businesses really are. The FedEx route can be sold by the contractor. So educating buyers about these differences becomes paramount when you are trying to sell your FedEx Ground linehaul business. The first step in this process is to find out how much your business is worth. We have provided some basic formulas you can use to estimate the value of a FedEx Ground linehaul business and get a rough idea of where you stand. Keep in mind, however, there is much more to putting an accurate value on your company than these simple guidelines. A professional business broker can analyze your entire operation and give you a true market valuation.
- 2x-3x SDE (Seller’s Discretionary Earnings), with SDE up to $250,000
- 3x-4x SDE, with SDE up from $250,000 to $500,000
- 4x-5x SDE, with SDE above $500,000
While these rules of thumb are helpful to give you a general idea of your FedEx Ground line haul business’ value, there are several additional important factors that can significantly impact buyer interest in your company and the final sale price – these are the intangibles that buyers use to compare your business to others available in the marketplace.
Taking a deeper dive into these intangibles:
Dedicated FedEx Routes
Maybe the biggest factor that can increase or decrease the value of your FedEx Ground route business is the quality and number of your dedicated routes. Some dedicated routes do not run with the same frequency as others, some are shorter hauls and some are in jeopardy of being nixed by FedEx entirely. As a general rule, FedEx Ground contractors with dedicated routes sell their business for more than those without these FedEx routes, but some routes add more value than others.
FedEx Tractor Points
FedEx Ground route qualified buyers typically have a good working knowledge of tractor points and how those points impact the contractor’s business. Simply put, your FedEx route business value is going to increase if you have tractors in your fleet with high point values. Large point totals mean your tractors are either already running dedicated routes, or they are in line receive dedicated routes – not to mention you could use them to upgrade your existing FedEx routes.
With that said, there are also some buyers looking for FedEx contractors for sale with low point totals because they are just looking for a foot in FedEx Ground door without paying a premium.
Number of FedEx Tractors
FedEx ground is a numbers game – the more miles you run, the more revenue you generate. So it makes sense that every tractor you are running makes a significant impact to your total revenue. The other factor to keep in mind about the size of your feet is competitive position in the marketplace. That is to say simply that the vast majority of FedEx Ground contractors are running 1-2 tractors, so the larger you can grow your fleet, the less contemporaries you have. This makes a tremendous impact on your business value, because there just aren’t many FedEx Ground route fleets running 10+ trucks, for example, and you can command a higher multiple of SDE in that case.
Condition of FedEx Tractor
Up to now, we have been talking exclusively about quantifiable data points that can push your business value up or down. Make no mistake about it, two FedEx Ground linehaul contractors with identical points, mileage, revenue, fleet sizes, drivers, etc., can be valued extremely differently based on the condition of the tractors. If buyers either see a lot of repair and maintenance expense on the P&L, or anticipate a lot to come in the near future, that can steer them away to another opportunity or cause them to devalue what you have.
Granted, there are two schools of thought when it comes to managing over-the-road fleets, and both have proven successful. Either run older trucks and maintain them, trading higher maintenance costs and more downtime for lower capex-related expenses, or run newer trucks with little repair cost, where the bulk of your fleet expense is in acquiring tractors rather than repairing them. Regardless of the model you subscribe to, when it comes time to sell, newer tractors will help you sell your business for a higher price.
Owner’s Responsibilities for the FedEx Routes
To drive or not to drive – not only is that question, but it also drives the value of your FedEx Ground route business. This is not a unique circumstance for business owners in every industry – the more involved the owner is in the business operation, the less valuable the business is as compared to companies that have less owner involvement. However, when it comes to FedEx contractors, this valuation factor is even more pronounced than you might expect. Demand drives business value, and in order to create the maximum amount of demand we need to attract the largest numbers of buyers.
If the owner of a FedEx Ground route business is operating and driving, that means the new owner will also need to be able to drive a tractor-trailer in order to successfully taker over the business. Think about the number of buyers active in the marketplace that have a CDL – it is not going to be a large percentage. All this to say, those FedEx Ground operations where the owner is also a drier are going to sell for less than those where the owner does not drive.
Also, keep in mind these value multiples include all of your assets. A professional business broker with experience selling FedEx Ground line haul businesses understands these factors and can provide you with an accurate market valuation of your business. Most buyers do not understand what makes FedEx Ground different. Our firm has valued and sold numerous FedEx Ground line haul businesses and know what buyers need to understand to truly get a premium price for your business, identify the tremendous opportunity it presents and get excited about the chance to acquire it.
Line Haul vs. Home Delivery
You would be surprised how many buyers interested in FedEx Ground opportunities do not realize the difference between line haul and home delivery. While that confusion is understandable to someone from the outside, you know how important the difference is between the two – and buyers need to understand that.
In our experience, we have found that buyers are much more attracted to the operational efficiencies, route composition, scheduling ease and cash flow consistency of line haul operations, and those are the traits most buyers expect to see when they look at a FedEx Ground business for sale. Some of them get turned off quickly when they see a residential pickup business instead but do not realize there is a difference. So it is important to always start at step one with a buyer and make sure they understand the differences in these two segments of FedEx Ground and the benefits of a line haul operation vs. home delivery service.
Dedicated Routes, Points and the “Open Board”
Most buyers looking at a FedEx Ground line haul business for the first time are probably used to a more traditional trucking contractor model and how loads and routes are typically assigned by dispatch. FedEx Ground’s dedicated routes are unique and lucrative, and potential buyer need to understand the true value of owning these routes. They also need to be educated about the point system. This is one of the harder aspects of the FedEx Ground line haul model for potential buyers to grasp because they do not have a feel for the value of a point.
Nonetheless, they need to understand how points are earned and ultimately used to improve dedicated routes or obtain new ones. Finally, buyers need to be taught about the open board and how the terminal’s route assignment rotation works. This helps them better understand the value of the dedicated routes and points also.
Deciphering the Settlement Statement
One of the beautiful things is the weekly settlement statement. One of the confusing things about FedEx Ground linehaul is also the weekly settlement statement. Because so much of the operational financial information needed to run a FedEx Ground linehaul business is included in the weekly settlement statement, many owners rely on that reporting to manage their businesses and fail to maintain proper financial books and records.
When it comes to selling your business, however, this can create a challenge for a buyer to properly evaluate and understand your business’ financials. So it becomes imperative for you to make sure your business has complete financial records that paint an accurate picture of the entire operation. For example, even though the majority of your fuel is deducted from your settlement, your P&L should still show an expense line for fuel. The settlement statement needs to be used as supporting documentation for your financials, not as your actual financial documentation.
FedEx Approval Process
Buyers must completely understand the owner’s role and the business overview because the buyer needs to make sure they feel comfortable assuming the owner’s responsibilities, but also because the buyer has to be approved by FedEx and the terminal manager. That terminal manager wants to ensure whoever takes over a successfully run operation understands what the current owner is doing and feels confident the buyer can replicate those duties. It does not matter if the owner is a full-time driver or lives in a different state from his/her home terminal and visits quarterly, buyers need to make sure and understand exactly what role and duties they will be responsible for.
Traditionally, securing third-party financing for a FedEx Ground acquisition proved difficult, if not impossible. But in recent years, some SBA lenders have finally come around to the realization that these businesses are quality acquisition loan candidates. Without getting too detailed as to why SBA lenders were averse to FedEx Ground deals, the two primary objections the lenders had are:
- (i) the businesses only have one customer – FedEx – so there is a tremendous customer concentration risk,and
- (ii) they do not like to finance deals with rolling stock as collateral.
While it is true that not every bank out there will finance FedEx Ground transactions, several have realized what current owners and an interested buyers have been excited about for years, and why these two primary objections have been overcome in the specific instances of FedEx Ground line haul businesses. But even with the improvement of the third-party financing market for FedEx Ground deals, owners still need to be prepared to seller finance a portion of the sale, and buyers need to be prepared to make a larger down payment than they would with a third-party loan.
Conclusion For How to Sell a FedEx Route Business
Overall, FedEx Ground line haul businesses are tremendously valuable and attractive to buyers For buyers to get and remain excited and motivated, you cannot just assume they understand why they should be excited. Buyers have to be educated about what makes FedEx Ground line haul businesses “the best-kept secret in trucking,” as one contractor put it.
Whether selling your FedEx Ground business is for today, or you still need some time to get your company ready to sell, a professional business market valuation is a great resource to have. This articles is not the whole process for a professional route valuations to the business valuation. That is why we always offer business owners a no cost, no obligation business market valuation before doing anything else. Feel free to contact us today and we can get that process started for you.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!