On Wednesday morning, July 22, RLS Logistics, a family-owned cold chain warehouse operator headquartered in New Jersey, announced an ambitious plan to build out a national network of family-owned cold chain facilities.
RLS Logistics was founded in 1968 and offers a diverse array of cold chain solutions, including truckload and less-than-truckload (LTL) transportation, warehousing, packaging, re-packing and e-commerce fulfillment.
By teaming up with what it calls Partnering Regional Operators (or PROs), RLS wants to create a large network of warehouse operators that can offer food manufacturers the responsiveness, customized solutions and strong customer service associated with family-owned businesses.
“We have several larger customers that are Fortune 500 companies,” said Tony Leo, RLS Logistics CEO and President of its Warehousing Group. “They would rather deal with a family-owned provider than with one of the larger national players. If they need a four-facility or five-facility distribution network across the U.S., they’ve told us, they’d rather work with strong family-owned regional companies than a national player because of service, responsiveness and the customized solutions they can offer.”
How RLS will build the network
Over the past year and a half, RLS identified 12 ‘mega-regions’ where it wants to expand with regional operators. RLS partnered with a real estate investment fund to acquire its PROs and has outlined a structure that allows the PROs to retain significant rolling equity. The continued equity stake in the business enables the families to operate their businesses relatively autonomously and continue to build their wealth.
Leo said that goal is to allow the family-owned operators to do what they do best, by cultivating deep customer relationships and working closely with food companies, while realizing synergies in marketing and back-office. Integrating the entire network in the same technology platform – RLS Logistics has an ‘extensive playbook’ for its technology stack – will also drive efficiencies and improve the value proposition to customers, Leo said. That means that RLS’ warehouse management system, business intelligence and analytics capabilities, and customer portals will be extended through the PROs network.
“The financial structure is really the cornerstone of our whole business model,” Leo explained. “By partnering with real estate funds and banks – there are multiple financial partners involved – the concept is to acquire existing best-in-class operators and to build new facilities, ending up somewhere around a 50-50 split between acquisitions and new builds.”
Because the PROs will retain significant ownership and operational autonomy, Leo said “we think the model sets us up to compete with anyone. We get the flexibility of family-owned businesses with the capital resources of any of the Top 5 providers out there today.”
The volatility in consumer demand during the COVID-19 pandemic has highlighted the need for flexible, responsive warehouse operators who maintain close contact with their customers. Leo said that RLS’ model preserves those traditional strengths of family-owned businesses while offering customers a larger, unified network.
RLS is already working to close three deals with family-owned operators in different regions of the country in the coming months, and the rest of the network should be in place in the next few years: “two years is too short and five years is probably too long” in terms of the timeline, Leo said.
RLS says that operator-led M&A will be more thoughtful
Private equity firms and other financial consolidators have found cold chain warehousing an attractive segment because the businesses are stable rather than cyclical, and capacity is somewhat constrained by the high expense of new construction. Both Lineage Logistics, which is owned by Bay Grove Capital, and Americold Logistics, a subsidiary of Americold Realty Trust, have pursued a relentless roll-up of the industry in recent years.
RLS is taking a different approach by having operators with decades of experience lead the acquisition strategy. Leo said that often private equity consolidators take a purely financial approach to integrating new companies, which can flatten out the distinctiveness and collaboration that their customers have come to depend on.
“It’s the opposite of a roll-up and flip strategy,” Leo said. “We’re long-term focused. One of the key differences is that the operating business, RLS, is leading the plan, sourcing the acquisitions and finding the opportunities – it’s not just left to financial types.”
Integrations will be done only where they add value, Leo explained, saying that the last thing he wants to do is change the things that have made a family-owned business successful.
“The fundamental principle of our model is that these family-owned operators know the markets and customers’ needs best,” Leo said. “We want to leave alone the things that made those businesses successful in the first place.”