How will the ISP transition affect FedEx Route Sales?

With the recent transition from IC to ISP in Oregon, Washington, California and Nevada, many FedEx contractors are wondering how this will affect the value and/or exit strategy of their routes.

Over the past several weeks, we’ve made a concerted effort to reach out to contractors in each of these states to learn more about the new contract and the implications thereof.  In short, the new requirements mandate that FedEx contractors will soon have to own a minimum of 5 PSAs or 500 stops.  What’s more, the new ISP contracts will come with several considerable differences – newly negotiated rates, multi-year terms, redefinition of “PSA” to name a few.  Depending on what side of the fence you’re on (i.e. whether you currently are over/under the minimums) these new mandates will affect you very differently.

For those contractors who own less than the newly imposed minimums – and want to sell – you have a couple options:  A.) merge with another contractor whose number of routes puts your combined operations over the minimum and sell jointly to an outside financial buyer; or B.) sell to an existing contractor so long as the combined number of routes meets or exceeds the minimum.

For those contractors who currently have a minimum of 5 PSAs or 500 stops, you will have a lot more options – and, frankly, a lot more opportunities.  Smaller contractors within your terminal will be looking for options in the near future and we expect this will translate to a lot of internal buying/selling/trading in the months to follow.

From the perspective of an outside buyer who is looking to purchase FedEx routes, it’s a bit of a double-edged sword – at least in the near term.  While buyers can now take comfort (artificial as it may be) in a multi-year contract, this contract is new and thus the historic financials they’ve been evaluating the business upon are somewhat void. Buyers will be faced with trying to project revenues and cash flows based upon this new contract and deriving a valuation from these projections.

For those contractors (large or small) who are looking at a sale in the near future, we’ve taken measures to help accommodate either scenario.  If you’re in a position where you need to merge with another contractor in order to sell, our team is equipped to consolidate your financials/operations in order to make a compelling offering to outside (or inside) buyers.  We’ll also work with you and your financial advisors to project your financial performance under the terms of the new contract.  This will help portray a reasonable expected cash flow so that a buyer can formulate a reasonable offer price.