Why is this an appealing space?
Mountcastle: 3PL businesses are typically very resilient, particularly if they are moving recession-resistant goods. This makes them attractive assets in the current economic cycle. The industry also has good long-term tailwinds that prevailed through the pandemic. Demand for transportation and logistics outsourcing continues to grow as companies seek greater efficiency and cost-reduction in non-core areas. Plus, companies are increasingly looking for 3PL providers that can provide end-to-end solutions, giving an advantage to the larger, more professionalized platforms that investors like to build.
Bass: Another factor is the impact of COVID-19 on both supply chain design and consumer behavior. For example, the pandemic highlighted the tremendous growth potential in last-mile delivery, whether of appliances, small parcels, or groceries. Grocery home delivery, in particular, has accelerated as people have become more comfortable with the concept. That's creating a last mile within the food space that hasn't existed before. In addition to delivery providers, new last-mile warehouses are popping up, and that's led to growth in demand for warehouse management. These trends are unlikely to reverse, and they create new spaces where innovative investors can create value.
What made Capstone an especially attractive company?
Kidd: Capstone has a diversified customer base, with a leading position in the grocery, foodservice, retail, and other C.P.G. industries. It has significantly expanded its solution set over time, and now offers a full suite of mission-critical services, from warehouse management and freight brokerage to last-mile delivery, reverse logistics, and payment processing. Capstone's services help companies optimize productivity and reduce costs, which has fueled its growth and made its relationships "stickier."
Further, Capstone's scale and scope are pretty unique. It has a presence in more than 500 warehouse facilities across the country. This scale provides the company with tremendous visibility and data that it can analyze and use to drive efficiencies that accrue to its customers' benefit.
Mountcastle: The company also has a highly scalable, non-asset-based business model. It has a large, skilled workforce that works inside and on the edges of the warehouse. The pandemic has created much more product flow through those warehouses and has kept those labor forces busier than ever.
In addition to enjoying a substantial growth opportunity with existing and new customers, Capstone has a history of successful inorganic growth. Its team is always looking to expand its portfolio, grow its geographic footprint, and build density in new and existing markets. Capstone also is in an excellent position to capitalize on longer-term supply chain redesign trends, such as the increase in localization and last-mile delivery.
Bass: Capstone also has a proprietary technology platform that connects data from shipment origin to last-mile delivery, offering differentiated data capture and business intelligence capabilities. While the company is not managing every activity within the warehouse, its end-to-end solution allows visibility into a tremendous amount of freight volume from major shippers. Capturing that data—where it's coming from and where it's going—and having the ability to analyze it helps Capstone create solutions that make the supply chain more efficient and cost-effective.
What should other prospective buyers know about this subsector?
Mountcastle: The pandemic has accelerated changes in the food supply chain as consumption patterns shift. This is fueling opportunities in many areas, including last-mile delivery and cold storage and fulfillment. Food supply chain management services, temperature-controlled storage and transport, and residential delivery are just some of the businesses that will interest larger platforms looking to fill holes in their end-to-end capabilities and geographic reach.
Bass: Analytics and technology will be increasingly important as companies work to drive greater supply chain efficiency. The best-positioned companies will have invested in both technology and talent so that they can be a significant service provider to high-volume shippers.
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Published January 2021