FedEx acquisition of GENCO is a done deal

Following a mid-December announcement in which transportation and logistics bellwether FedEx said it signed an agreement to acquire Pittsburgh-based GENCO, a third-party logistics (3PL) services provider specializing in product lifecycle and reverse logistics, FedEx said late last week the deal has officially been completed.

Financial terms of the deal were not disclosed.

With the deal now complete, FedEx said that GENCO will operate as a subsidiary of FedEx, with GENCO CO Todd Peters remaining in his position and continuing to lead the group. FedEx added that GENCO’s financials will be included in FedEx’ Ground business segment.

“We are extremely pleased to welcome GENCO teammates to the FedEx family,” said Frederick W. Smith, Chairman and CEO of FedEx Corp., in a statement. “We believe this acquisition demonstrates our commitment to our customers with enhanced supply chain and logistics offerings, which will also continue to drive growth. We look forward to starting the integration process.”

When this deal was first announced late last year, FedEx explained it was driven by wanting to further expand its e-commerce business and related reverse logistics processes.

GENCO has annual $1.6 billion in annual revenue and operates more than 130 warehouse locations comprising more than 38 million square feet in North America. Its customer base is made up of several Fortune 500 shippers in various sectors, including technology, consumer, industrial, retail, healthcare, and federal government. Its service offerings include: inbound logistics; warehousing and distribution; fulfillment; contract packaging; managed transportation; systems integration; returns processing and disposition; test; repair; refurbishment; product liquidation; and recycling.

FedEx noted in December that GENCO processes more than 600 million returned items annually and is viewed as a “pioneer and market leader in reverse logistics, providing triage, test and repair, remarketing and product liquidation services. The company has more than 11,000 employees.

Stifel Nicolaus analyst David Ross commented in a research note that FedEx is buying a quality, complementary company with a strong industry position, keeping its leadership intact and not dealing with any significant integration issues.

Ross added that with GENCO CEO Todd Peters remaining in his position following the completion of the deal is “very positive,” with Peters being what he called a terrific leader, while noting that any change in leadership would make the transition more difficult. Another factor cited by Ross was that there is not much overlap between GENCO and the smaller FedEx Supply Chain group in explaining that it is not clear as to what the merger plan is for these units at this point.

Jerry Hempstead, president of Orlando, Fla.-based parcel consultancy Hempstead Consulting, viewed the acquisition of GENCO as a very good fit for FedEx at this time.

“FedEx has been in the third party logistics business for a long time, but primarily focused on high value outbound transactions, for example medical devices,” he said in an interview. “We have seen with the rise of e-commerce the increasing need for firms to have an effective retrieve and return process (an example would be a cell phone retrieve, repair and return). GENCO is a leader in the returns space. Integrating the retrieval and transport piece with the returns processing of GENCO marries––most importantly––the data for the order lifecycle.”

The one caveat for this deal, he explained, is that the reverse logistics and returns arena has a lot of competitors, unlike small parcels, and as such the price points are low and margins tend to be slim.

“FedEx has never been the low cost operator so it will need to be cautious so as to allow the cost structure of GNECO to continue without adding overhead burdens,” added Hempstead.

Some of GENCO’s competitors in this space include DHL/Exel, UPS Supply Chain Solutions, and XPO/New Breed.

Evan Armstrong, president of supply chain consultancy Armstrong & Associates, labeled this transaction as a “gargantuan deal” in that it ramps up FedEx Supply Chain’s competitiveness with that of its chief rival UPS Supply Chain Services for retail, high tech, and healthcare customers, while also adding the missing international piece to GENCO’s primarily North American operations.

Domestically, Armstrong said GENCO “dominates” the reverse logistics arena, which provides approximately 40 percent of its revenue. He explained that its operations have a heavy emphasis on Lean Six Sigma management processes and environmental sustainability and GENCO’s IT applications include the leading return logistics software program R-Log, voice tasking, RFID, robotics, optical real-time location system, pick/put-to-light, and hydrogen fuel cell powered forklifts all supported by a R&D technology learning center.

“GENCO is a technological generation ahead of most value-added warehousing and distribution 3PLs,” said Armstrong. “GENCO has a host of “A” level operations in all its value-added specializations.”

GENCO’s 2010 acquisition of ATC strengthened its dominance in high-tech reverse logistics, according to Armstrong. With ATC now operating as GENCO Technology Solutions (GTS), it offers product lifestyle logistics for the telecommunications and consumer electronics industries.

“Beginning with kitting and product customization, through fulfillment and returns management, and aftermarket services to test, repair, and refurbish and sell on the secondary market, GENCO’s product lifestyle logistics solution meets all post-manufacturing logistics requirements–packaging, custom services, warehousing and distribution, transportation, returns processing, test and repair, and remarketing,” he said. “In EMEA, GENCO has operations in Bahrain and which generate about $5 million in gross revenue annually.”