Hub Group acquiring CaseStack for $255 million

CaseStack operates mixing centers for consumer product companies selling to retailers and helps manufacturers reduce transportation costs.    The supply chain management company Hub Group said Monday that it has agreed to acquire CaseStack Inc. for $255 million in cash.
    CaseStack is a non-asset-based logistics firm that has two business lines. Eighty percent of its revenue is derived from consolidation services it sells to consumer package goods companies, and 20 percent is from truck brokerage, mostly to companies in the less-than-truckload business.
    For the 12-month period ended Sept. 30, CaseStack generated revenue of approximately $242 million and EBITDA of about $22 million. The company’s main offices are in Santa Monica, Calif., and Fayetteville, Ark. In comparison, Hub had revenue of $4 billion in 2017.
    The CaseStack consolidation services business operates mixing centers at warehouses in seven markets across North America where it combines products sold by various makers of consumer goods and then arranges for the delivery to retail distribution centers. It has a diverse set of customers, with no single customer accounting for more than 5 percent of its business and the top 25 customers providing just 25 percent of its business.
   All of the products it handles are non-refrigerated, dry goods. Customers in the food and beverage business account for 65 percent of CaseStack sales; health and beauty products 7 percent and cleaning products 5 percent.
    Dave Yeager, the chief executive officer of Hub, explained that CaseStack helps manufacturers comply with retailer demands and reduce transportation costs.
    In a telephone call with securities analysts, Yeager explained that as retailers have become more sophisticated, they demand delivery of product within certain time windows and will fine suppliers if they do not receive the full amount of a product or receive it on time. He said CaseStack can allow shippers to get products to their retail customers on a more timely basis, with less damage and at a lower cost.
   He explained by consolidating the products of multiple suppliers, CaseStack is able to build full truckloads of product going to distribution centers.
    CaseStack has large warehouse distribution centers in Southern California and around Dallas, Atlanta, Chicago and Eastern Pennsylvania. It also has smaller facilities in the Pacific Northwest and near Toronto.
    Among the retailers the company works with are Walmart, Sam’s Club, Target, Kroger, Amazon and Whole Foods.
    Yeager noted that with the growth of e-commerce, there is a growth in the number of product SKUs. He said that means that there are some “slower-moving product that is going to expand the amount that is required for warehousing as well as the consolidation of LTL shipments that go directly into retailer distribution network.”
   There are opportunities for Hub Group and CaseStack to cross-sell, he said. For example, Hub, which is one of the country’s largest intermodal marketing companies, would be able to arrange the movement of inbound containers of product to the CaseStack warehouses. CaseStack receives about 50,000 inbound loads each year and about a third of Hub’s business today comes from large consumer product goods companies.
   The acquisition of CaseStack follows Hub’s decision to sell its Mode subsidiary in August to York Capital Management for $238.5 million.
   Hub expects to fund the acquisition of CaseStack without having to borrow cash. Closing of the deal is expected in December.