What’s Your FedEx Routes Business Worth?
Perhaps you are considering a partial sale to manage growth in your organization? Or, maybe you are starting to think about retirement? Whatever your reason, thinking proactively about the value of your business is critical to maximizing your return on investment.
If you understand the present-day worth of your operation, you can make necessary edits so you don’t leave cash on the table when it’s time to sell.
What Determines Price?
Certain factors can significantly affect how much you can sell your business. With that in mind, knowing and understanding those factors can help you sell your operation at the right value, and ensure that you receive the best deal possible. Listed below are factors that determine the price at which you can sell a portion of your business:
Demand
In this industry, demand is often tied to geography—operations in some locations sell at premium prices because the number of interested buyers far outpaces inventory. We do see certain parts of the country such as Texas, Florida, New York, Colorado, and California with a higher base of interested investors.
Geography is one factor you cannot control. However, there are ways to enhance the demand for a business that you own. For example, a broad base of new buyers are seeking alternative financing opportunities: offering seller financing or assumable truck debt can substantially increase the interest in your operation for sale.
Furthermore, you can increase demand by having a solid management structure available with the purchase. Managers can influence value since it makes your business appear more efficient and organized. Additionally, a high portion of our new investors are seeking to operate routes as remote owners. A business for sale with a reliable manager and lead driver for contingency planning is highly attractive and will increase the purchase price of the business.
Linehaul runs often have a higher demand than P&D routes, particularly premium runs. The most valuable linehaul runs are dedicated, high mileage runs.
Timeline
In some cases, a terminal may be placing pressure on a contractor to downsize. We see this most often when terminals begin enforcing scale guidelines more strictly. We also see this when a contractor receives an OTC due to recurring service or safety violations.
Time is not a contractor’s friend. The value of your operation decreases with a compressed sales timeline.
We highly advise current contractors to come into line with scale guidelines before it becomes an issue with your terminal manager. Similarly, if you are in danger of losing your contract, you need to be working with a broker to understand your options and protect your investment.
Fleet
Your fleet strategy is another factor that influences the value of your business. The fleet you are operating can make a major difference in how attractive your business is to a potential investor. Investors will consider the age of your fleet vehicles and the general maintenance of the trucks to-date.
Keeping clear maintenance records for your fleet increases buyer confidence and raises the fleet value.
Profitability
At the end of the day, your profit margin is the largest driver of value. Keep in mind that Total Revenue is not what determines the value of your operation to a buyer. Net Operating Income is what determines the value of your business.
For P&D operations, if your profit margin ranges from 10-20% of revenue, that is considered a healthy business. On the linehaul side, anywhere between 15-35% of revenue is optimal.
Valuations for FedEx Routes
We are seeing operations sell at 4-5x EBITDA. That number has doubled in the last 4 years. We used to see operations sell 2-3x EBITDA. Our average multiple is now a 4.50 multiple of earnings.
We have approximately $358 Million of transactional volume available through our brokerage. Throughout a calendar year, anywhere from 30-60% of that transactional volume is under contract. We see the largest percentage (60%) under contract during the 3rd quarter of the year, leading up to Peak Season. The demand for routes is incredible.
You can also think of valuations as a percentage of Total Annual Revenue. P&D operations sell at 60-80% of Total Annual Revenue. This is an upward shift from our analysis in previous years, reflecting increasing demand. Linehaul operations sell at an average around 110% of Total Avenue Revenue.
Those valuations are inclusive of an average fleet. Operations with a brand new fleet or a fleet with older vehicles will fall outside of those ranges.
Market Conditions
While the value of your business is determined by multiple elements, changes happening in our society play a significant role in the overall value of your business.
Market Stability: Any political uncertainty regarding general elections, foreign relations, and trade negotiations creates economic uncertainty. This uncertainty impacts all businesses.
Network Growth: FedEx Ground is always looking for new initiatives to drive volume to the network such as SmartPost and integrating FedEx Express volume into the network. These initiatives can create fluctuating growth periods for delivery businesses. This can require contractors to manage growth more strategically, and it can have an impact on the valuation cycles of your business.
Scale: If your business is over the scale guidelines, you will not be able to transfer your contract to a new buyer. It’s critical you manage scale as your business organically grows. Sudden shifts in the package volume for your market, or changes to the terminal’s scale guidelines, can influence your need to downsize and it can affect your ability to sell your entire operation.
Maximize Your ROI
There are methods that you can implement to maximize the value of your operation. As contractors, we are all going to want to transfer our contract and pull our investment out of this business one day. This means you need to intentionally set up and run your operation to sell your business in the future.
Use an Accountant: Having an accountant oversee your financial records significantly improves the value of your business and prevents large clean-up accounting expenses when you go to sell your operation.
Hire a Clean-up Service if You Need One: Without clean financial records, the value of your business decreases substantially. If you do not have accurate records, we highly recommend hiring a clean-up service specializing in gathering and preparing historical financial records. This is worth the investment.
Use Assumable Debt: Use assumable debt to purchase trucks or scanners. We can structure this type of debt into a future transaction.
Ready to Sell Your Business?
Our team at Route Consultant strives to provide you with various resources and services and to help you sell your business at its maximum value. One of the best ways you can prepare for a future sale is to understand your current value. Connect with our team for a free business valuation and we will provide you with action items you can take to improve its value.
Get the Most Out of Your Operation
Route Consultant is the premiere consultant and educator in the last-mile delivery and logistics space. Want to get the most out of your investment? Looking to optimize your operation and maximize profits? Need to teach someone how to successfully manage a delivery operation? Our suite of educational courses capitalize on decades of operational experience to bring you battle-tested strategies and best practices to find success in your business.
