How to Value: Local Delivery Services

Industry Description

The Couriers and Local Delivery Services industry in the U.S. contain establishments that primarily engage in providing air, ground or combination mode courier and express delivery service for parcels and packages (NAICS 492110). They operate in two segments: larger couriers and smaller local delivery companies which together cater to various consumers. These services are engaged usually between urban centers, metropolitan areas or international that form a network; however, they do not operate under a universal service obligation.

The following are some basic characteristics of the industry:

  • Couriers and Local Delivery Services have a combined revenue of $149.6 billion with an annual growth rate of 4.2% in 2022-2027, a decrease from previous years
  • There are approximately 325 thousand enterprise locations as of 2022
  • Couriers and Express Delivery Services industry employs approximately 927 million people

Industry Trends

The Couriers and Local Delivery services industry is in a growth phase of its lifecycle.  The local messenger and delivery services segment is highly fragmented; while the courier segment is highly concentrated with an estimated 82.3% of industry revenue coming from the top four industry operators combined.  The key external forces that influence the Couriers and Local Delivery services industry are (i) e-commerce and online retailing’s growing demand for services (ii) using technology innovation for an advantage against fierce competition and (iii) economic uncertainty is decreasing per capita disposable income. Each of these is described in further detail below.

E-commerce sales represent the portion of consumer retail purchases that are made online and represent a vital growth opportunity. The COVID-19 pandemic shifted consumer spending to online, leading to a surge of e-commerce and online retailing sales. This behavior shift continued post-pandemic restrictions which, combined with (i) the decline of brick-and-mortar stores and (ii) developments made by large online retailers, such as Amazon’s same-day delivery, will likely expand industry revenue.

There has not been significant technological disruption in the industry. However, the major players are investing in electric vehicles and developing drones and robots for last mile delivery to maximize efficiency and be sustainability minded. These innovations represent a potential competitive advantage. However, the largest competitor for couriers, the United States Postal Services (USPS), currently has a larger resources, manpower and geographic reach that represent an industry risk.

Industry revenue and demand for services generally fluctuate with consumer retail purchases. The risk of stagflation in 2022 predicts per capita disposable income will likely decrease, thus reducing the consumer demand for goods that are transported by industry operators. This poses a threat to industry.

Key Performance Metrics

In evaluating local delivery service companies, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions:

  • Revenue per store, region and fleet
  • Monthly costs and volume by vehicle class and parcel type
  • Delivery on Time and in Full
  • Average and running monthly spend by region and store
  • Vehicle capacity vs Available capacity
  • Average cost per delivery
  • Average Delivery Distance
  • Number of Stops and Deliveries
  • Average time by delivery stage

Industry Organizations & Publications

The following organizations publish useful information:

  • Customized Logistics and Delivery Association (CDLA)
  • Global Express Association (GEA)
  • Express Carriers Association (ECA)

Guideline Information: Private Purchase Transactions

Most local delivery service companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held local delivery service companies is generally the best source of information to appraise a subject company.

The following are typical appraisal multiples from sale of local delivery service companies:

  • Revenue multiples between 0.36 and 1.3 times
  • Gross Profit multiples between 0.50 and 2.4 times
  • EBITDA multiples between 1.4 and 7.9 times

In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered. 

Guideline Information: Publicly Traded Companies

The largest establishment in the Courier and Local Delivery Services industry is United States Postal Office (USPS), which is operated by the federal government. There are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company.  It is estimated that USPS, FedEx and/or UPS handle 95% of e-commerce orders and last-mile deliveries. Though there are a growing number of companies that solely handle last-mile delivery.  These companies are typically regionally based and are not publicly-traded. 

The largest publicly traded companies that include local delivery services ranked by market capitalization are:

  • United Parcel Services, Inc. (NYSE: UPS) – $159.5 billion market capitalization
  • FedEx Corporation (NYSE: FDX) – $59.8 billion market capitalization
  • J.B. Hunt Transport Services (NYSE: JBHT) – $16.7 billion market capitalization
  • Expeditors International of Washington, Inc. (NYSE: EXPD) – $16.3 billion market capitalization
  • C.H. Robinson Worldwide, Inc. (NYSE: CHRW) – $12.8 billion market capitalization

The Price-to-Earnings (P/E) ratios of these five companies range between 11.3 times and 20.1 times.  It is worth noting these companies do not operate exclusively as last-mile delivery companies; using these multiples for appraisal requires careful consideration. 

Appraisal Rules of Thumb

Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.

Local delivery service companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.