December 16, 2014
FedEx Corp. agreed to buy closely held logistics firm GENCO, a specialist in handling product returns, as e-commerce operations expand at the operator of the world’s largest cargo airline.
No terms were given for the transaction. FedEx said today that Pittsburgh-based GENCO had annual sales of $1.6 billion and more than 11,000 employees.
GENCO handles more than 600 million returned items a year, according to a FedEx statement that billed the company as a leader in “reverse logistics.”
“With the growth of e-commerce there are more returns,” said Satish Jindel, president of SJ Consulting Group Inc., who estimated FedEx paid about $2 billion for GENCO. “That is likely to help the growth of this company.”
FedEx announced the deal during the busiest season, with the company expecting record shipments of more than 290 million packages from the day after Thanksgiving to Christmas Eve. Deliveries were forecast to have peaked today at 22.6 million, FedEx said in an October statement.
Retail e-commerce is overtaking the traditional business-to-business deliveries that once drove sales at shipping companies such as FedEx and United Parcel Service Inc. UPS, the world’s largest mover of packages, has predicted that e-commerce shipments will expand four times faster than the U.S. economy.
“As e-commerce continues to grow, customers of both companies will reap the benefits from the broadened capabilities and powerful new services,” FedEx Chief Executive Officer Fred Smith said in the statement.
Todd Peters will remain CEO of GENCO after the transaction, according to the statement. GENCO will continue to operate as a separate company until the acquisition closes in 2015, FedEx said.
“There’s a good management team in place,” Jindel said today in a telephone interview. “As long as they leave them alone and let them run themselves, like they’ve done with FedEx Ground, it should work out well.”
FedEx acquired the company now known as FedEx Ground in the late 1990s. The last acquisition FedEx made in the U.S. was Watkins Motor Lines in 2006, according to Erin Truxal, a company spokeswoman.
Jindel said his Sewickley, Pennsylvania-based research group estimates GENCO’s annual earnings before interest, taxes, depreciation and amortization - a measure of cash flow known as Ebitda - was about $208 million. If FedEx paid the current market multiple of 9.8 times Ebitda, that would put the price at about $2 billion, he said. Truxal declined to comment on the estimate, saying in a telephone interview that the company isn’t providing terms.
GENCO has the “best reputation” in the reverse logistics business and handles returns for large companies such as Sears Holdings Corp. and takes care of mobile phone logistics for AT&T Inc., Jindel said.
GENCO said on its website that it provides solutions for seven of North America’s top 10 retailers and three of the top 10 consumer-products companies.
With GENCO, FedEx will be able to offer its customers the package return service as well as delivery. FedEx also can ship returned goods to markets where it sells at a higher price, Jindel said.
“Some of this returned merchandise has a better value proposition being sold in China and India and Latin America,” he said.
Source: Bloomberg Businessweek
Related: Why Reverse Logistics Needs to Become a Core Competency Inside Your Supply Chain