How Sellers Dress Up a Route for Sale
There is a move sellers make in the year or two before they list a FedEx Ground route. It is not fraud. It is accounting that is technically true and quietly misleading, and it works on any buyer who does not know to look for it. Once you understand it, you can defeat it in a single step — and you can also stop overpaying on the multiple.
This builds directly on the SDE trap: the key fact is that SDE is computed before the trucks are paid for. If you have not read that piece, read it first — the move below only works because of the gap that one explains.
None of this is tax or investment advice. Run the actual numbers past a CPA and a broker who know this business before you agree to anything.
The fleet-refresh move
Here is the move. In the year or two before selling, the seller buys new trucks. New trucks have two effects on the books:
- Repair and maintenance costs drop. New trucks barely break. That is a real, current expense that comes straight out of earnings — and it is not added back.
- Depreciation rises. A new truck carries a large depreciation charge. And depreciation is added back — it is the D in EBITDA, so it is already stripped out before you ever reach the SDE a buyer is shown.
So the seller has shifted cost from a bucket that lowers the earnings a buyer sees (repair and maintenance) into a bucket that does not (depreciation). The reported EBITDA and SDE go up, even though the business is spending just as much money — arguably more — on its fleet. If the business sells at a multiple of those earnings, the seller gets paid a multiple for the dressing-up.
It works — against a buyer who does not normalize for maintenance capex.
How a real buyer defeats it
A disciplined buyer defeats it in one step. They ignore the seller’s depreciation number entirely and substitute their own estimate of real maintenance capex — what it actually costs, per year, to keep this specific fleet on the road indefinitely. Then they value the business on earnings after that figure.
The fleet-refresh move does nothing against this buyer, because they were never going to pay a multiple for a depreciation line in the first place. They pay for sustainable cash flow, and sustainable cash flow already has the trucks subtracted.
Two more things worth knowing so you do not over-rotate on depreciation:
- Buying trucks before a sale is a fleet refresh, not “window dressing.” A genuinely fresh fleet has real value — it lowers the buyer’s near-term capex. The problem is only when the price assumes the buyer will not notice the depreciation game. The trucks are good; the inflated multiple on them is the issue.
- Section 179 and bonus depreciation are a tax lever, not a valuation lever. Accelerated depreciation can crush your taxable income — that is a real and legitimate tax strategy. But a buyer values the business on normalized book earnings, not your tax return. Loading up on accelerated depreciation lowers what you owe the IRS; it does not raise what a sharp buyer will pay. Do not confuse the two ledgers — and know that it can come back as depreciation recapture (ordinary-income tax on the gain) when you eventually sell, which is one more reason to have a CPA model the exit.
The multiple, and why it’s lower than the listing implies
So what does a route actually sell for? You will hear people throw around multiples casually — “four times EBITDA,” that sort of thing. Be careful with both the number and the base.
Small owner-operated route businesses generally trade on a multiple of SDE, not EBITDA, and the multiple is typically in the range of two and a half to three and a half times SDE, depending on the market and how clean the books are. The high end — approaching four — is reserved for large, clean, well-documented, multi-route operations with real management depth and meaningful term left on the agreement. A single small contract with thin records does not get that.
Pegging it at roughly three times SDE will keep you out of trouble in most conversations. There are exceptions — a dense metro with constrained capacity, or a platform with real management depth and long term remaining, can clear that ceiling — but that is the exception you have to prove, not the listing you assume.
Why so low for everyone else? Two reasons, and they are the same two reasons these businesses do not command the multiples that other small businesses do:
- Single-customer concentration. You have exactly one customer: FedEx. There is no diversification. If the relationship changes, every dollar of revenue is exposed at once. Buyers discount hard for that, and they are right to.
- Remaining agreement term. The contract has a clock on it. A buyer is partly buying the years left before renewal — and renewal is FedEx’s call, not yours.
These two facts are also why you should be suspicious of any listing implying a yield that looks like a safe bond plus a fortune on top. Safe, high, passive yields do not sit around on a broker’s listing sheet waiting for you. If the math looks like free money, you have not finished subtracting yet.
What to bring to the table
When you sit down across from a seller or a broker, the diagnosis above turns into a short list of things to ask for. Every one of them either confirms the cash flow or exposes the fleet-refresh move:
- The truck list — age, mileage, and condition on every vehicle. This is how you estimate real maintenance capex instead of guessing.
- Repair-and-maintenance spend by year, for the last three years. A sudden drop in the year or two before the sale is the fleet-refresh move in plain sight.
- The settlement statements, not a summary. Read them yourself — and if you do not know how, start with how to read your settlement statement.
- How many years remain on the agreement, and the operation’s history with the station.
If the route is being sold as a carve-out rather than a whole contract, there is a second layer of risk on top of all this — the seller chooses which trucks and drivers come with the deal, and they will keep the best. That trap has its own article: the carve-out warning.
Then take all of it to a CPA and a broker who know this business before you agree to a number. The questions are the operator’s job. The final valuation is theirs.
The single sentence to take with you
If you remember one sentence from this article, make it this one:
Buying new trucks before a sale shifts cost from repairs (which lower the earnings a buyer sees) into depreciation (which is added back), so the books improve while the business spends more — and the only defense is to value the route on real maintenance capex at about three times SDE, not on the seller’s dressed-up number.
The fleet refresh is real value and a real trap at the same time. Pay for the trucks; don’t pay a multiple for the accounting.