When a new potential FedEx Route contractor approaches the linehaul industry to entertain starting a business, the initial learning curve can be steep. There are typically three factors that attract investors to the FedEx Linehaul industry: minimal hours to own the business, accelerated growth, and immediate profit from day 1.
These can all be true, but many times they are not. A new potential contractor needs to understand the business completely, early on, before beginning to negotiate a business. How to gain knowledge on the FedEx Linehaul business model is a topic extensively covered in these articles and videos.
Today, the focus is on diving into the important pieces of paperwork and data to ask a seller or a selling broker (if you choose to work with one) when considering purchasing a Linehaul Route business. This is not a comprehensive list, but instead, a guide to the most valuable pieces of information.
MUST check Documents in Purchasing a Linehaul Route at the onset. (Don’t waste your time without these - or ours.)
1. Schedule A of the TSPA (Transport Service Provider Agreement)
FedEx Contractors are ruled by the TSPA, the contract every contractor enters into FedEx with. They are all identical aside from a few schedules relevant to the individual business.
The Schedule A will describe exactly what the run is contracted to do, what days of the week, and what run position it is. Positions with run #1 are more valuable than run #5 because they will always go first; when there are volume concerns, run #5 will be cut before run #1
Remember, this information is not taken as fact; it is verified with other information. Specifically, there may be times when a run is scheduled to go out every day, but in reality, it only works 5 days.
From a revenue perspective, that is a significant difference that needs to be accounted for.
2. Settlement Statements
Recent settlement statements provide insight into what the business or routes are currently doing. Ideally, 3 months of settlements will work, but that needs to include non-peak season weeks as a part of that list.
Volatile swings in macroeconomics have made mileage for these runs just as volatile. While years' worth of settlement statements can be analyzed during the due diligence, recent information is highly recommended when building a model, rather than an average of the past 3 years.
With the settlement statements, there are 2 significant pieces of the Pro Forma: Revenue and Fuel. Revenue can only be obtained from the settlement statement. The settlement statement also shows the fuel expense for a business. In rare, outlier situations, a business could be paying for fuel outside of the settlement statement, although that is highly unlikely. The fuel expense as it relates to the expected revenue of the runs ensures the fuel ratio (fuel expense/revenue) is at a reasonable level.
3. Payroll statements
It is important to see exactly how the team is being paid and understand the different payroll expenses for different roles: Driver, Team Driver, Lead Driver, Manager, and Administration dispatcher. With these documents, we can build an accurate P/L based on concrete data. With payroll expenses at 35-50% of certain runs, this is a huge expense we want to account for.
4. List of trucks included in the business
a. What trucks come with the purchase of the business?
b. What is the mileage and value of each truck?
c. Are the trucks leased or owned?
d. If it’s a lease, what are the expenses and what is the cost and remaining term on the lease?
Detailed maintenance reports are important, as well as getting a mechanic inspection, but these items can wait until after the L.I.M. (Linehaul Information meeting).
5. Worker’s Comp Rate for Drivers
While the rate may not be the same as the sellers', this will give an understanding of how to account for Workers Comp in a pro forma, a significant expense. Ask your Linehaul Solutions team member for a list of rates per state if it is not provided.
6. Sample TSPA from FedEx
The contract is detailed and can be reviewed early. Ensure it is current, as it updates yearly.
With this information, you have what you need to properly analyze the business. You can determine what a fair value for the business is and be comfortable beginning negotiations knowing they aren’t wasting their time.
The following are additional items that can be asked for from a seller: Helpful at onset, but not mandatory to proceed with an offer.
7. Point statement
This has less importance than it once did. FedEx adjusted the system to include other parameters when bidding on new runs. This will also show if there are any concerns with the seller not operating the runs and if they may be losing one quickly.
8. SRS statement
Although the safety score doesn’t transfer over to the new buyer, it can be informative to see what issues they have had previously, to get a feel for how they are managing the business.
9. List of Safety/Tech Vendors
This will allow accurate accounting for pricing on safety expenses.
10. Contractor Provided P/L
While this is very important information, a P/L based on certain factors that a contractor will typically use is not as relevant as one created by the buyer based on the Schedule A.
Typically, this will include revenue from spare or ”wild” sources, which are not assigned a value to. An interpretation from the current operator does provide value as it may give a sense of how they (or their broker) are assigning values to the assets of the business.
Skippable Documents in Purchasing a Linehaul Route
In our very humble opinion, the following are items not needed at all. We will collect the info as required by a buyer, we can only give our honest opinion.
1. Tax Returns
The business is not valued based on tax returns, and pricing parameters are not set based on tax returns. They provide zero value and are completely unnecessary. In the rare instance SBA Financing is used to purchase a business, the seller can send returns directly to the bank. The only reason a seller would be providing tax returns would be to justify revenue that is no longer being generated or revenue from sources other than what’s on the Schedule A.
The tax returns cannot verify any information and are not the best resource for any information on the business. Based on hundreds of sales and potential sales, not once has the tax return provided any reasonable guidance. It only serves to convolute the due diligence process and delay a true understanding of the business.
Why was the revenue so different from past years? 1098 from FedEx has this information.
I need exact payroll information. Let’s look at the payroll journals we included in the sale packet.
How much do they spend on truck maintenance? Please never expect this to be accurate on tax returns. The nature of the beast.
Look how successful this business is, it’s worth $X? No, it's not, revenue is only relative in how it relates to the Schedule A.
2. Business bank statements
They are rarely provided, but they are asked for. Similar to tax returns, there are better places to go for this information.
3. Corporation documents or Good standing documents of the current seller
The business is not being bought; just the contract attached to the business.
4. How long has the seller owned the runs?
The time the runs have been owned, or even in service does not affect the value. During a conversation with the seller, you can inquire and get a better understanding of the business, drivers, and local station, but initially, there is no concern.
This list is not meant to be comprehensive. There are many documents that are asked for from sellers, and in most cases, not necessary in the very early stages of due diligence.
The fact is that it’s a must to accept from the beginning that you are not buying the business. Even if they are buying all of the FedEx Linehaul Routes (Runs) from a business, they are still starting a new corporation (not LLC) to own these “assets”.
If you look at this as buying the current business, you open yourself up to overpaying. A seller will simply ask for the going rate of what a trucking company sells for on the market, typically 3-4X of EBITDA. That alone can be very problematic, especially in January of 2024 when a seller (or most likely their broker) can pull in data from 2022 to inflate projected revenue.
When purchasing a FedEx Ground Linehaul Route business, you are buying the contracted runs on schedule A and should not attempt to buy all of the extra “wild” miles a business has been running in addition to their contract. As seen in a multitude of cases, those “dedicated spares” don’t last forever. Just because a current business has a relationship with a station and is able to do the same thing daily, doesn’t mean the new owner will be entitled to that same relationship.
When it is said FedEx Linehaul is different from purchasing other trucking companies, it is simply referring to the fact that you are purchasing the contracts with FedEx described in the TSPA a business owns, not the entirety of the business. Changing the perspective of potential buyers and new contractors beginning their Linehaul journey is critical to ensuring the success of the new crop of entrepreneurs joining the ranks.
