DC Velocity - January 2015

newsworthy

FEDEX CORP., MAKING ITS BOLDEST FORAY EVER into the third-party logistics (3PL) field, has acquired Genco Supply Chain Solutions, a Pittsburgh-based contract logistics provider, for an undisclosed sum.

The deal, scheduled to close sometime in 2015, affirms FedEx’s strategy of expanding into areas beyond its core transportation offerings. It also narrows the gap between the company and its rivals, UPS Inc. and DHL Corp., for market share in the global supply chain management segment, an area where, until now, FedEx has not been a relevant player.

Genco will operate as an independent company until the transaction closes, Memphis, Tenn.-based FedEx said in a statement. Genco CEO Todd Peters will continue in his position after the deal is done, FedEx said.

It is unclear how Genco will be integrated into FedEx; FedEx currently has a small supply chain group, and there appears to be little, if any, overlap between FedEx and Genco. Also unclear is how much FedEx paid for Genco. According to Benjamin J. Hartford, transportation analyst at investment firm Baird, other high-quality 3PLs have fetched a multiple of between seven and nine times earnings before interest, taxes, depreciation, and amortization (EBITDA), a marker of cash flow. For example, XPO Logistics Inc., a fast-growing 3PL, paid a multiple of around eight in July when it acquired New Breed Logistics, also considered a top-tier contract logistics player, according to Hartford.

Benjamin Gordon, CEO of BG Strategic Advisors, a mergers and acquisitions firm specializing in the transportation and logistics sector, said Genco should be assigned a multiple of 10 times EBITDA. Based on an estimate by SJ Consulting that Genco generates about $208 million in annual EBITDA, FedEx would then have paid more than $2 billion.

LONG-TIME PLAYER

Genco, founded in 1898 and privately held, is one of
the largest North American companies in the contract
logistics segment, where providers offer warehousing and
distribution services to clients on a contractual basis and
deliver transportation management solutions under that
umbrella. Genco generates $1.6 billion in annual revenue
and manages 35 million square feet of North American
warehouse space from more than 130 locations. Only Exel/
DHL Supply Chain, a unit of DHL, has a larger North
American warehouse footprint among what are known as
value-added warehousing and distribution 3PLs, accord-
ing to Evan Armstrong, president
of Armstrong & Associates Inc.,
a consultancy that tracks the 3PL
business.

Reverse logistics accounts for
about 40 percent of Genco’s reve-
nue, according to Armstrong, who
called the company the dominant
player in the fast-growing segment.
Genco gained a strong position
in high-tech reverse logistics after
its mid-2010 acquisition of ATC
Technology. Besides technology,
Like many leading 3PLs, Genco offers an array of tra-
ditional forward and reverse logistics services. It has also
built what Armstrong said is an impressive suite of infor-
mation technology (IT) solutions to support its product
lifecycle services. Armstrong called Genco a “technological
generation ahead of most value-added warehousing and
distribution 3PLs.”
In a touch of irony, Genco’s parcel management services
unit is counseling customers on how to prepare for the
possibility of significant rate increases now that FedEx and
rival UPS Inc. have shifted to dimensional pricing models
from weight-based pricing for packages measuring less
than three cubic feet. The FedEx change took effect Jan. 5.

For FedEx, the acquisition is likely to trigger a sizable increase in package business from product returns. In turn, Genco, whose operations are North America-centric, will have access to FedEx’s global transportation and logistics network.