Looking for FedEx home delivery routes in the San Francisco Bay

[Socrates101]

I live in the SF Bay Area and am looking to buy FedEx home delivery routes. Frustrated with brokers and would like to network with owners/operators. Any thoughts on how this can be done? FedEx is very protective of contractor lists and it is almost impossible to meet with terminal managers. Any thoughts or references would be appreciated.

Also, does anyone know what a is a reasonable gross revenue multiple to pay for these businesses? I have determined that EBITDA that brokers use is a lost cause since numbers are cooked and the only reliable source are FedEx statements (assuming that no tax returns are available as usually is the case). Happy to talk live as well.

Thanks in advance for any thoughts

 

[It will be fine]

Paging @gixxer squid he operates out of SF area and can probably help you out. He's not very active here though. Try sending him a PM it might go to his email.

 

[FedGT]

It is virtually impossible to buy a contractors routes without some sort of misleading information. there is not really a widely accepted multiple. If you are in a state where supply is low and demand is high, I have seen over a 4-4.5x net multiple which is very high. If you are in an overabundant supply state net multiples can be as low 1.5-2x. There is no gross multiple, same fundamentals good routes low supply can be 10-20% over gross flip side is 30% under gross.
Best advice I can give you is get all tax returns and go through them with a fine tooth comb getting information on everything that doesn't add up.

 

[Socrates101]

Thanks for the input. Everybody posts asking prices at about 3x EBITDA. The key question is what is EBITDA. It is my impression that EBITDA is in the 20-25% range while brokers routinely post listings with EBITDA margins in the 30s and some times high 30s. Also, it depends a lot on how one runs the business since there are some guys that fix their own rucks, change oil, change tires etc. This will make the tax returns look better than reality. Also, don't forget that at the end of the day one needs to take into account truck replacement. With CA regulations many trucks with relatively low mileage will need to be replaced over the next 3-4 years. This is serious money and at the end of the day the advertised deal for 3 X EBITDA ends up being 5-6 x real cash flow. Some people have told me that deals happen around the country at 60-70% of gross, which is in full agreement to the 20-25% margin quoted above. This is the reason that I would like to network with operators, potentially those that are not selling their businesses to see what reality is. Currently there are a ton of listings in the SF Bay area, most at 6-8X real cash flow that haven't moved for months. I guess that indicates that operators (people smarter than me) aren't biting. Thus, I am afraid that those selling are looking for the next sucker.... and I don't want to be that.

 

[Socrates101]

Paging @gixxer squid he operates out of SF area and can probably help you out. He's not very active here though. Try sending him a PM it might go to his email.

Thanks for the replay. I searched the blog and ]@gixxer squid has some good postings. Nevertheless, being new to the site I have no idea how to send him a PM. I would be very thankful if anyone on the board could give me some tips on how to send a PM. Also, any other ideas on how to network with operators or get into terminals to speak with terminal managers would be kindly appreciated.

 

[Route 66]

Thanks for the replay. I searched the blog and ]@gixxer squid I would be very thankful if anyone on the board could give me some tips on how to send a PM..

Click on your user name at the top of this page, then click on "conversations" - follow prompts.

 

[Socrates101]

Thanks Route 66. I followed instructions and tried to start a conversation with participant @gixxer squid . Nevertheless, when I tried to start the conversation I got the message that "the following participant @gixxer squid could not be found". Am I doing something wrong or does this mean that he is no longer a member? Thanks in advance for any tips.

 

[Socrates101]

Thanks for the replay. I searched the blog and ]@gixxer squid has some good postings. Nevertheless, being new to the site I have no idea how to send him a PM. I would be very thankful if anyone on the board could give me some tips on how to send a PM. Also, any other ideas on how to network with operators or get into terminals to speak with terminal managers would be kindly appreciated.

I removed the @ and was able to start a conversation successfully. Thanks for the help. The question about networking ideas stands though.

 

[dmac1]

Fedex Home is likely to be absorbed into fedex ground. What that means is unknown. What is known, is that if Fedex HD ceases to do business, your contract becomes null and void. That is in the contract.

 

[FedGT]

Fedex Home is likely to be absorbed into fedex ground. What that means is unknown. What is known, is that if Fedex HD ceases to do business, your contract becomes null and void. That is in the contract.

It actually says that in their contract??
They have some weird stuff on the HD side.

 

[Socrates101]

Fedex Home is likely to be absorbed into fedex ground. What that means is unknown. What is known, is that if Fedex HD ceases to do business, your contract becomes null and void. That is in the contract.

Thanks for bringing this up. I had no idea. Is this just a rumor at the moment or has FedEx made any noise about it. Do you have any idea what the justification for this is? Intuitively it sounds like it would be tough for FedEx to just kick out ISPs despite the fact that contracts would be cancelled. Contracts get renewed anyway every year. How do they fill the hole? Unless they want to hand the contracts to Ground ISPs.
Question: Does anyone know if there is any difference in the HD vs. Ground contracts? I thought that the only difference was that Ground delivers Mon-Friday while HD delivers Tue-Saturday. Any other thoughts on the +/- of one vs. the other would be appreciated.

 

[It will be fine]

Thanks for bringing this up. I had no idea. Is this just a rumor at the moment or has FedEx made any noise about it. Do you have any idea what the justification for this is? Intuitively it sounds like it would be tough for FedEx to just kick out ISPs despite the fact that contracts would be cancelled. Contracts get renewed anyway every year. How do they fill the hole? Unless they want to hand the contracts to Ground ISPs.
Question: Does anyone know if there is any difference in the HD vs. Ground contracts? I thought that the only difference was that Ground delivers Mon-Friday while HD delivers Tue-Saturday. Any other thoughts on the +/- of one vs. the other would be appreciated.

It's informed speculation at this point. FedEx is constantly talking about the benefits of owning both services in a zip code. When they eliminate HD they will give everyone a date, tell them to own both services in a zip if they want exclusive rights to negotiate for it. If you don't own both, the area will go up for bid and FedEx will decide who gets it.
You're best off buying a company that already covers both services or buying both services from the separate entities that own them now.
Biggest difference between them is pickups. Ground does the majority of them so they typically drive larger trucks. They need to be a higher caliber of driver, with the ability to route themselves and adjust to meet time windows. Ground is also typically paid a bit more than HD.

 

[Socrates101]

It's informed speculation at this point. FedEx is constantly talking about the benefits of owning both services in a zip code. When they eliminate HD they will give everyone a date, tell them to own both services in a zip if they want exclusive rights to negotiate for it. If you don't own both, the area will go up for bid and FedEx will decide who gets it.
You're best off buying a company that already covers both services or buying both services from the separate entities that own them now.
Biggest difference between them is pickups. Ground does the majority of them so they typically drive larger trucks. They need to be a higher caliber of driver, with the ability to route themselves and adjust to meet time windows. Ground is also typically paid a bit more than HD.

Very constructive thoughts. Thanks. This smells like trouble both for ground and HD operators. I further assume that territories for Ground and HD don't coincide which is an issue that they (FDX) would need to fix. It seems to me that a more reasonable alternative for FedEx would be to shrink territories and make HD pickup Ground while Ground delivers HD. This could be messy though since I don't know if one would end up with the same income. It could be positive on the expense side though since routes would be shorter. Also, I suspect this will create opportunities for some to make money and for some to get screwed??

On ground: since ground gets higher rates from FDX, does this mean that their margins are higher? Or do salaries and larger trucks offset any revenue benefit?

Regarding Trucks-don't both HD and ground deliver stepvans? Or does ground drive larger stepvans?

Thanks again for your input

 

[It will be fine]

HD and Ground cover the same area. Ground will still do plenty of residential stops and HD will do some business stops. When you own both the routes are much tighter, but you still need the same number of guys as when they are separate. They can only do so many stops a day.
A lot of HD guys have been buying smaller step vans but many are still getting sprinters because it's easier to find drivers with the smaller weight trucks.
If I were getting in now I would only consider owning both just for the security. I've started buying up the overlapping area of my Ground stuff now just to get ahead of the game.

 

[Bounty]

Very constructive thoughts. Thanks. This smells like trouble both for ground and HD operators. I further assume that territories for Ground and HD don't coincide which is an issue that they (FDX) would need to fix. It seems to me that a more reasonable alternative for FedEx would be to shrink territories and make HD pickup Ground while Ground delivers HD. This could be messy though since I don't know if one would end up with the same income. It could be positive on the expense side though since routes would be shorter. Also, I suspect this will create opportunities for some to make money and for some to get screwed??

On ground: since ground gets higher rates from FDX, does this mean that their margins are higher? Or do salaries and larger trucks offset any revenue benefit?

Regarding Trucks-don't both HD and ground deliver stepvans? Or does ground drive larger stepvans?

Thanks again for your input

See that's the reality of this company, in my state we just went ISP and these poor guys ran around trying to raise money to buy routes to get to scale and now X is going to hit them with this ground owning hd. X thrives on having people leveraged to their eyes. Do yourself a favor and stay away!!!

 

[instiches]

You hit the nail on paying around 60-70% gross. I always get a chuckle after seeing sellers list their routes at par, or even higher than gross.

 

[FedGT]

You hit the nail on paying around 60-70% gross. I always get a chuckle after seeing sellers list their routes at par, or even higher than gross.

I think it depends largely on the scale. 1 or 2 routes 70% sounds about right, but a $1,000,000 gross isn't going to sell at $600,000-700,000.

 

[Socrates101]

I think it depends largely on the scale. 1 or 2 routes 70% sounds about right, but a $1,000,000 gross isn't going to sell at $600,000-700,000.

I am in CA and the state has gone the ISP way last year. Thus, the transition has happened and given that the min size of an operation is 5 routes, most businesses on the market have gross between $700,000 and $900,000. The question is how much should these sell for. e.g. for a business grossing $700 what is a value range? What about at the $1m gross mark?

 

[instiches]

I think it depends largely on the scale. 1 or 2 routes 70% sounds about right, but a $1,000,000 gross isn't going to sell at $600,000-700,000.

It really shouldn't. There really aren't too many economies of scale in this business where margins improve significantly with higher revenues.

I bought my routes a year ago that are grossing more than a million and I paid 60%.

 

[FedGT]

It really shouldn't. There really aren't too many economies of scale in this business where margins improve significantly with higher revenues.

I bought my routes a year ago that are grossing more than a million and I paid 60%.

Either got a pretty good deal or in a large supply area. Big routes here even to other contractors in the terminal sell for pretty much gross.