Todd Peters, the current chief executive officer of GENCO, will continue stay with the company.
FedEx has agreed to purchase GENCO, a 3PL with $1.6 billion in annual revenue, for an undisclosed sum.
Until the transaction closes and Canadian and U.S. regulatory approvals are granted, GENCO will operate as a separate entity.
Todd Peters, the current chief executive officer of GENCO, will continue in that role, according to Herb Shear, GENCO’s executive chairman.
“With similar corporate cultures, shared values and unwavering focus on developing world-class logistics solutions, FedEx and GENCO are a great fit,” Shear said in a statement.
Just last month, GENCO opened its first healthcare distribution center in Canada, where it now boasts 9 million square feet of warehouse space. At the time, a GENCO spokesman called Canada “a strategic priority” for the company. Across all its holdings, “the reverse-logistics pioneer” processes 600 million returns a year, the company said.
FedEx CEO Fred Smith said the acquisition will help the integrator expand its global portfolio.
“As e-commerce continues to grow,” he stated, “customers of both companies will reap the benefits from the broadened capabilities and powerful new services.”
BB&T Capital Markets estimated the purchase price to be around 10 times GENCO’s estimated annual earnings of between $220 million and $225 million.
Kevin Sterling of BB&T Capital Markets called the reverse-logistics industry “one of the fastest growing areas of e-commerce” and said FedEx’s newfound ability to be a market leader in this arena will help it gain a larger share of the online shopping market.
“For instance, since GENCO acquired ATC Corporation in July 2010, the company has steadily expanded its high-tech 3PL operation with significant high-volume order fulfillment, returns processing, and test and repair capabilities with major wireless carriers such as AT&T,” Sterling wrote.
Sterling pointed out that e-commerce is growing at a rapid rate. Sales for this year are estimated at $304 billion — a rise of around $40 billion from 2013 — and that annual results will hit $492 billion by 2016.
“With the rapid growth of e-commerce,” Sterling wrote, “we believe the GENCO acquisition is well-timed as order fulfillment and repair capabilities become an integral part of a shipper’s supply chain, reducing costs and time in transit for both shipper and consumer.
Analyst William Blair noted that GENCO’s revenue will add 3.3 percent to FedEx’s current revenue estimates.
“We have known GENCO for some time and believe it is one of the top logistics companies in the space, as it has achieved success in an area where many have struggled,” the firm wrote in an earnings estimate. “We believe GENCO is a good fit for FedEx, as it provides unique services in supply chain management and reverse logistics that should not only fit in well with its core small parcel and freight business, but also fills a
gap in its service offering.
“FedEx has always lagged UPS in terms of specialty logistics,” the firm continued, “but this acquisition should help close that gap.”
FedEx will release its second-quarter results Wednesday morning. William Blair is predicting better-than-expected earnings, in part due to increased volumes and better package yields.
“The peak holiday season appears to be shaping up nicely as the U.S. economy gradually inches forward,” the firm said in an investor note. “We are encouraged by the growth opportunities resulting from the growing e-commerce trend, and we believe the large integrators are in the best position to capitalize on that expanding market.”
The investment firm Stifel pointed out that with Peters remaining in his current post, the transition is likely to be less rocky.
“Without knowing how much was paid or what the potential accretion of the deal is, we had a favorable reaction to the announcement, as FedEx is buying what we believe to be a quality, complementary company with a strong industry position, keeping its leadership intact, and not dealing with any significant integration issues,” it wrote.
According to Stifel, GENCO moves in the technology, retail, consumer and healthcare industries, and this presents a good industry match with FedEx’s current offerings. As others have underlined GENCO’s reverse-logistics capabilities, Stifel said most of the company’s revenue comes from elsewhere.
“While a market leader in reverse logistics, GENCO receives most of its revenue from forward logistics, including transportation management,” the firm wrote. “It also has a parcel management services group, which FedEx certainly found attractive, in our view.”
FedEx to buy GENCO
