One of the most active consolidators of cold chain facilities is a relatively new venture with old roots.
Founded in 1968, RLS Logistics started as a family-owned mushroom farm. It added a cold storage facility and then grew to include multiple facilities over time. Through a joint venture RLS Partners was formed with outside industry veterans a year and a half ago. The group has been actively rolling up family-owned cold chain warehouse and logistics providers since.
The need for temperature-controlled storage space and accompanying logistics networks is high. The competition for these assets also remains high with large players like Lineage Logistics and Americold (NYSE: COLD) making most of the M&A headlines in recent years. In fact, Lineage, the largest temperature-controlled warehouse and logistics provider in the world, has raised more than $4 billion in the last two years, which in large part has been used to fund acquisitions.
New Jersey-based third-party logistics provider RLS has a different approach to M&A. It seeks to only work with family-operated companies where current leadership will stay on to run the facility after the transaction closes. RLS sees the value in retaining management from the acquired PROs, or partnering regional operators, as they are the experts in their respective markets, have deep relationships with customers and vendors in the region and have the expertise to run the facility.
“We’re looking to acquire other family-owned cold storage providers that are well run and have a good vision, a good strategy of customer experience,” John Gaudet, VP of business development, told FreightWaves. Gaudet said it’s important “to keep that family-owned vibe as far as responsiveness and entrepreneurialism intact.”
It’s not just about accumulating a portfolio of real estate assets, which often creates customer churn as ownership changes usually accompany changes to service.
“It was kind of a dissatisfaction among family companies and most importantly among customers who were looking for more continuity of their business,” said Tom Casey, chief investment officer at RLS Partners. He said the approach is a way for families to “take some money off the table” but also provide an opportunity for the next generation.
Once onboarded, the PROs have access to deeper capital resources for expansion and automation upgrades. RLS works with a large real estate fund based in New York to fund its acquisitions and development projects.
RLS’ marketing and sales teams help rebrand the acquired entities and position them to solicit national accounts. RLS has a unique position in the industry as it will soon offer a national network of storage facilities where all of the operators are fully integrated on the same warehouse management system. This is a key selling point when calling on big brands, which require all-encompassing inventory visibility platforms.
Operators also benefit from enhanced finance and human resources capabilities as well as sophisticated quality assurance and safety programs.
The PROs reinvest in the network at the time of closing. “It’s almost like a share group on steroids,” Casey said. The reinvestment is not just tied to the success of the individual operation, it includes investment in the national RLS network as well.
Casey added that the strategy “aligns all of our interests. It creates this partnership across the country.”
RLS Logistics also offers managed transportation services and has a less-than-truckload and truckload brokerage unit, which books the transport of goods in and out of its facilities. However, some of the acquired entities are running company-owned equipment.
“We really are building a network of people, first and foremost,” Casey said. “Sometimes we’re actually just partnering with a particular operator in a region who’s a best-in-class guy, who knows all the customers, ran another business and we support that person and his team with capital.”
North American footprint taking shape
RLS has already added partners in California, Massachusetts, Pennsylvania and Texas to go along with its 3PL locations in New Jersey, Pennsylvania, Tennessee and Utah.
The goal is to create a North American network of warehouse operators in roughly a dozen “mega regions” throughout the U.S. and into Canada, including locations serving the ports. The areas identified are expected to be the largest population centers by 2050. The strategy is really a play on direct-to-consumer fulfillment.
“The future is: Get to the population quicker,” Gaudet said. In addition to acquisitions, RLS is looking at new builds in these regions. “We’re identifying areas [that] lack an up-to-date cold storage location.”
RLS will have six new partners in the network at the end of 2021 but that number will likely grow to 20 or more, including new developments, by the end of 2022. Currently, the company has roughly 55 million cubic feet of space, which lands it firmly among the top 10 providers in North America.
RLS serves food producers, distributors and processors, providing a variety of cold chain warehousing and transportation services. Its warehouse offering includes e-commerce fulfillment, kitting and assembly, packaging and repackaging. The company also provides pool consolidation and delivery to Walmart (NYSE: WMT) distribution centers.
The past year has been a tough one for RLS. In addition to COVID and other headwinds facing the industry, the company lost Tony Leo, the CEO of RLS Logistics, Warehousing Group. Leo was a key figure in RLS’ national expansion strategy.
“Tony’s passing shocked our organization,” Gaudet said. “Tony’s vision was to develop a national network with strong family operations that provided an alternative to the larger competitors. The way the team is persevering in making Tony’s vision a reality is inspiring.”
Looking into 2022, the pipeline for further industry consolidation remains robust.
“There’s a lot of runway here because of the age of the facilities in the industry across the country,” Casey said. “When you put together this national program of integrated facilities with quality family operators, there’s a lot that we can do for years to come. We see a lot of great opportunities in the years ahead.”
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