FedEx to acquire Pittsburgh-based 3PL GENCO

With an eye on further expansion of its e-commerce business and related reverse logistics processes, transportation and logistics bellwether FedEx on Monday announced it has inked an agreement to acquire Pittsburgh-based GENCO, a third-party logistics (3PL) services provider specializing in product lifecycle and reverse logistics.

Financial terms of the deal were not disclosed, but more information is expected to be released when FedEx announces its Fiscal Year 2015 second quarter earnings. FedEx said GENCO will continue to operate as an independent company until the deal is complete in early 2015.

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.

“The acquisition of GENCO will transform our global portfolio through the addition of new best in class supply chain management services,” said Frederick W. Smith, Chairman and CEO of FedEx Corp., in a statement. “As e-commerce continues to grow, customers of both companies will reap the benefits from the broadened capabilities and powerful new services.”

FedEx noted 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 GENCO CEO Todd Peters will remain in his position following the completion of the deal, which he said 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 Newgistics, an Austin, Texas-based provider of end-to-end E-Commerce solutions, and Spinnaker, a Houston-based provider of various logistics services, including: demand/supply planning, procurement and sourcing, logistics and warehousing, and reverse logistics business performance.

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.”