From FedEx Routes to Fencing: Lessons in Business Acquisition and Growth

The Journey from Insurance to FedEx Routes

Matt O'Brien's entrepreneurial journey began with a pivot from the insurance industry to owning FedEx routes. After a year of research and due diligence, Matt acquired his first FedEx route in Knoxville, Tennessee, consisting of one truck and one driver. He quickly learned that to have a contract with FedEx, you need at least two "lanes" - routes that go from point A to B and back to A.

Matt expanded his FedEx business through a combination of acquisitions and organic growth:

• Acquired the initial route in Knoxville
• Obtained two additional lanes in East St. Louis through FedEx's interview process
• Expanded to Nashville and Evansville
• Consolidated operations in St. Louis by divesting other locations
• Doubled the size of his business by acquiring another contractor's routes

The FedEx Business Model

Matt explained some key aspects of the FedEx contractor model:

• Contractors are referred to as "transportation service providers" (TSPs) for line haul operations
• Agreements are annually renewable
• Weekly direct deposits from FedEx, eliminating accounts receivable concerns
• Focus on operational efficiencies rather than sales
• Geographic limitations on how many routes a contractor can own in a specific area

Selling the FedEx Business

As the COVID-19 pandemic hit, Matt's FedEx business experienced significant growth due to increased demand for logistics services. Recognizing this as a potential peak, Matt decided to sell the business in 2021:

• Listed the business in March 2021
• Received four full-price offers on the first day
• Closed the sale by August 2021
• Achieved a 3.5x multiple of EBITDA
• Annual revenue was approximately $3 million
• Margins were around 20%

Matt's timing proved excellent, as he sold the business at what turned out to be the peak of the pandemic-driven logistics boom.

Transition to Commercial Fencing

Shortly after selling his FedEx business, Matt was introduced to an opportunity in the commercial fencing industry. After initial hesitation, he decided to pursue the acquisition of Professional Fence.

Attractions of the Fencing Business

Matt highlighted several appealing aspects of the commercial fencing industry:

• 100% B2B focus, aligning with his preference for business-to-business operations
• Specialized expertise in sports facilities (baseball, softball, football fields)
• Recurring revenue from temporary fencing rentals for construction sites and events
• Strong reputation and brand recognition in the local market
• Proximity to his home (20-minute drive vs. 4-hour drive for the FedEx business)

Acquisition and Growth

Matt acquired Professional Fence using an SBA 7(a) loan with a 10% equity injection. The business had annual revenue of about $2.5 million at the time of purchase. Since the acquisition, Matt has driven significant growth:

• 2023 revenue: $3.95 million (60% growth from acquisition)
• 2024 revenue: $4.95 million (another 25% growth)

This growth has been achieved through a combination of strategies:

• Implementing more granular financial analysis
• Updating pricing strategies
• Improving operational efficiencies
• Enhancing organization of materials and job packs
• Establishing standard operating procedures (SOPs)

Lessons from the Fencing Business

Matt shared several insights for those considering acquiring a commercial fencing business:

• Focus on the quality and structure of the team
• Evaluate customer concentration
• Assess the integrity and lifespan of equipment
• Consider the potential for operational improvements
• Understand the project-based nature of the business
• Look for opportunities to serve institutional clients (schools, prisons, etc.)

A Failed Acquisition: Lessons Learned

In an attempt to build a diversified portfolio of businesses, Matt acquired another trucking company in March 2023. However, this venture faced significant challenges:

• Decreased value of freight loads
• Increasing labor costs
• Rising insurance expenses
• Insufficient working capital

Ultimately, Matt was forced to divest the business in April 2024, resulting in a loss of at least $500,000. Key takeaways from this experience include:

• The importance of thorough due diligence
• Recognizing potential red flags during the acquisition process
• Understanding the true operational costs, including hidden expenses
• The challenges of replicating a lean, owner-operated business model
• The need for focused attention on each business venture

Business Acquisition Thesis and Future Outlook

Despite the setback with the trucking company, Matt remains optimistic about future acquisitions. His thesis focuses on:

• B2B service businesses
• Operations in tertiary markets around cities
• Leveraging the strong work ethic of employees from rural areas

Regarding the future of Professional Fence, Matt sees significant growth potential:

• Possibility of doubling revenue again to reach $10 million
• Attracting interest from private equity firms
• Potential for bolt-on acquisitions
• Considering long-term hold vs. eventual exit options

Matt emphasizes that the business is still in its "early innings," with substantial room for growth and improvement.

Conclusion

Matt O'Brien's journey from FedEx routes to commercial fencing illustrates the opportunities and challenges of business acquisition and growth. His experiences highlight the importance of thorough due diligence, operational efficiency, and strategic planning. While not every venture has been successful, Matt's ability to learn from both triumphs and setbacks has positioned him for continued success in the world of entrepreneurship through acquisition.

Article created from: https://www.youtube.com/watch?v=KjzauGUk6bo