Warehousing & Fulfillment M&A Update – August 2024

Warehousing & Fulfillment M&A Transaction Activity is Soft. But Sector Consolidation is Expected to Eventually Accelerate and Remain a Long-Term Trend.

The Warehousing & Fulfillment sector has experienced the most e-commerce driven transformation of any part of the logistics ecosystem. Linear networks have transformed into distributed multi-way networks with warehouses and fulfillment centers closer and closer to end-customers. Notably, the sector underwent a wave of deal activity in 2021 and early 2022. Nascent, tech-enabled platforms such as Shipmonk, ShipBob, and Stord raised capital at more than a billion-dollar valuations. Large logistics integrators such as Maersk (CPSE:MAERSK B) and Ryder System (NYSE:R) have made multiple acquisitions in an effort to build a more comprehensive direct-to-consumer (D2C) offering which traditionally only provided business-to-business (B2B) services. After seeing a surge in sector deal activity, E-Commerce and Fulfillment growth moderated in the second half of 2022 and 2023. So far, 2024 has been a year of mixed financial performance and muted merger and acquisition (M&A) activity. In the longer-term, Warehousing & Fulfillment M&A is expected to accelerate as sector leaders optimize strategically placed nationwide (and sometimes international) operations and leverage scale benefits to implement technologies across their networks. Platforms servicing niche sectors with unique handling and environmental needs have received the highest strategic M&A interest and remain areas where smaller players can continue to thrive by providing high-touch customer service.

While the difficult operating environment over the last 24 months has moderated acquisition activity, targets with complementary distribution and fulfillment networks and accretive technological capabilities continue to generate buyer interest. This is evidenced by Stord’s April 2024 acquisition of ProPack, of which Capstone provided financial counsel to ProPack. Our exclusive interview with ProPack co-founder, Alex Snyder, explores how the company’s customer-centric focus and advanced software capabilities contributed to their success and eventual sale to Stord (read full interview below).

Looking ahead, Capstone anticipates volume growth and over capacity challenges to continue to weigh on sector transaction activity until a sustained uptick in industrial and consumer end-demand is realized. “…on the e-commerce omnichannel…We're looking for an improvement in the demand. They're still pretty soft, but we're also trying to right size the business where we can and adjust to the cost structure as best we can. So, we're certainly looking for that to have some benefit in the second half [of the year],” noted Ryder CEO, Robert Sanchez in a Q1 2024 earnings call.¹ “…we're seeing continued volume in the Automotive sector and Industrial. So, I think pretty decent outlooks there…. And I think, as Robert said, the omnichannel, it's really a volume play. If you think about the e-comm business and last mile business. So, when the economy turns back around, we're ready to go sell that business,” added Ryder’s President of Supply Chain and Dedicated Transportation Solutions, Steven Sensing, in the earnings call. Strategic infrastructure and technology investments coupled with strong projections for continued e-commerce growth will support healthy long-term growth.

The muted level of transaction activity is temporary. We continue to see strong investor interest around the space, as strategic players continue to look to M&A to fulfill strategic needs and financial buyers like the strong secular growth trends. I am bullish on a rebound in M&A activity. Inventory levels have corrected across industries and warehousing and fulfillment companies have made difficult cost structure changes in the down market, which will result in a strong rebound in operational performance with improved volume growth. Strategic consolidation will continue as business owners know they will either need to be consolidators or consolidated to compete.

Gordon MackayManaging Director, Capstone Partners

Warehousing & Fulfillment M&A Data Reinforces Weakness, but Shows Pockets of Strength Among Private Equity and Strategic Buyers

At the most basic level, the recent drop in deal activity can be attributed to temporary buyer skittishness (particularly amongst private equity) and target business owners holding out for a stronger operating environment (and therefore more attractive achievable sale value) to pursue a sale. Warehousing & Fulfillment M&A volume in year-to-date (YTD) 2024 has totaled 29 transactions announced or completed, down 9.4% year-over-year (YOY) from 32 deals in the prior year period. Private strategic sector transactions have fallen 36.4% YOY, with 14 deals announced or closed to-date.

However, leading consolidators in the space have remained active, selectively targeting participants that fulfill high priority strategic initiatives. Of note, Ryder announced its acquisition of Impact Fulfillment Services (IFS) in October 2023 for an enterprise value of $255 million. IFS is a provider of contract packaging, manufacturing, and warehousing services for more than 180 consumer packaged goods (CPG), retail, and enterprise clients, according to a press release.² “The acquisition of IFS supports our strategy to accelerate growth in our supply chain business, providing Ryder with new capabilities that are complementary to our existing suite of services,” noted Steve Sensing, President of Ryder’s Supply Chain Solutions group, in the press release.

Financial buyer activity has been active around platform add-on transactions YTD, with transactions increasingly significantly YOY to make up 27.6% of deal activity. For example, Metro Supply Chain, a contract logistics provider backed by Caisse de Dépôt et Placement du Québec (CDPQ), acquired supply chain outsourcing service provider, SCI Group, in January for an undisclosed sum. “This transaction aligns with Investissement Québec’s mission to create a logistics champion and support its geographic expansion outside Québec. Metro Supply Chain is setting an example by making a significant investment to improve its productivity by automating its warehouses. The Covid-19 pandemic highlighted the importance of supply chains, which are an essential link in the Québec economy,” noted Guy LeBlanc, president and CEO of Metro Supply Chain’s financial partner Investissement Québec, in a press release.³

ProPack Co-Founder Shares Story of Company Growth and April Sale to Stord in Exclusive Capstone Interview

Alex Snyder, ProPack Co-Founder and President

Capstone spoke with Alex Snyder, co-founder and President of ProPack Logistics, to discuss the company’s growth, evolution, and its recent sale to Stord—a provider of fulfillment and supply chain technology for omnichannel middle market and enterprise brands. Alex, co-founder, helped establish ProPack in 1991 with a 2,000 square foot warehouse, aiming to provide customers with third-party logistics services. Alex has led the company for more than 30 years, spearheading the company’s growth and evolution. Today, ProPack operates six warehouses across the U.S. and Canada and has expanded its services to include multi-channel fulfillment, last-mile shipping, and reverse logistics.

Stord acquired ProPack for an undisclosed sum in April, expanding upon Stord’s existing fulfillment network throughout the U.S. and Cananda. Stord now operates 1.6 million square feet of fulfillment centers across ten markets and ships more than 25 million direct-to-consumer (D2C) and business-to-business (B2B) orders annually, according to a press release.⁴ "ProPack’s strong multichannel processes, proprietary systems, and extensive fulfillment experience in the Nutrition and Supplement category perfectly complements our cloud supply chain solutions. This acquisition expands Stord’s comprehensive suite of products and services tailored to our customers. Further, this acquisition accelerates Stord’s revenue and volume scale, and cements our position as a leading North American e-commerce and fulfillment platform,” noted Sean Henry, CEO of Stord, in the press release. Building on its recent acquisition of ProPack, in July, Stord announced its acquisition of Pitney Bowes’ (NYSE:PBI) e-commerce fulfillment business unit for an undisclosed sum, according to a press release.⁵ The acquisition expands Stord existing portfolio of ten fulfillment centers with a 640,000 square foot capacity facility in Kentucky, now the largest warehouse in Stord’s network. Delivering more than five million packages annually, the acquisition bolsters Stord’s network coverage across the central U.S.

“This new facility is a powerhouse for existing customers and allows brands to rapidly scale its business and meet consumer demand. With 52 dock doors, 15k pallet positions, and 136k cubic feet of bin shelving, Stord can service omnichannel brands from any vertical - be it Consumer Goods, Health and Beauty, or other high-volume DTC and B2B products,” noted Stord’s Kyle VanGoethem, VP of Strategy and Innovation, in the press release.

How did you get into the Logistics space and what was the genesis of ProPack?

The Logistics business was something I only saw at a very micro-level when I got started thirty-two years ago. I worked for another company here locally that had private mailboxes, some order fulfillment, and some bulk mail – so three or four businesses all in one. Working there I started taking particular notice of order fulfillment. After learning more and more about it, it really resonated with me. By picking, packing, and shipping product, we were bringing tremendous value to our clients and allowed them to focus on growing their businesses rather than fulfilling client orders. That stuck with me.

I just couldn’t get out of my head that this is a group of businesses that needed to be serviced better, so, I started ProPack along with a friend of mine. We started with two customers— super small, very regional in our beginnings. We were mostly serving Canadian companies on the U.S. side of the border to help distribute products in the U.S. And that’s kind of what I assumed from the beginning—that ProPack was a bit of a border services service, if you will.

Gradually over time we learned more and more about the fulfillment industry and adapted best practices as we grew. Our customer service approach was very strong. That’s what got us into a real growth mode — we grew 31 of our 32 years.

What has been the key to success for ProPack’s continued, long-term growth?

Three key things. The first is being super client centric; being really in-tune with what their needs are and talking to them often. Asking them: what is it that you need? How can we continue to improve the service we provide? The second thing is being confident that we’ll make it work. Whatever speedbumps arrive along the way, that confidence that we’re going to overcome those and continue to grow and serve the industry in a bigger and bigger way. The third one, and it took me a while to figure this out, is gathering a team of really good, quality people that understand our mission and that can take over parts of the business. Once I figured that out, I wasn’t spread so thin, and we then could grow much faster.

Could you provide a specific example of how ProPack has been responsive to customers’ needs?

A number of years ago, a client came to us and said, “Look we have a problem.” The inventory quantities in their ERP [enterprise resource platform] system did not match ours for their own inventory. We did some deep diving and realized our ERP system was being updated in real time (regardless of new inventory coming in or returns coming back) while their end was not being updated the same way. We collaboratively figured out that we would, every single day, line up our inventories with them. Every day we did a download, they adjusted everything on their end to reflect what ours was, and every morning they would wake up with accurate inventory. Any discrepancies we would look into and research. But what that did for the client was that they felt confident that the inventory and their ERP was accurate, and it was a huge win. Since then, all our bigger clients have been doing the same thing.

How did ProPack get into serving the Nutritional Supplements space and is there anything unique you are doing in that space that makes ProPack different from other fulfillment providers?

Until 2008, we were very broad in our client base and product offerings — all kinds of different things like home goods, textiles, and a few supplements. Through the recession in ‘08/’09 and we observed what clients and what products continued to sell, and what products didn’t. The supplement clients grew through the recession, while many of the textile companies stumbled and some even went bankrupt.

Coming out of that experience, we focused on the nutritional supplements world almost exclusively. It has some very special requirements such as lot controls and quarantine capabilities — all kinds of different requirements. We quickly experienced incredible growth in that space. We worked hard, built embedded technology and all the capability that was required to support those kinds of clients. In a fairly short period of time, we became quite the specialist in the space.

In 2012 we rolled out nationally. We were still based in Blaine, Washington, but we transitioned from being regional to being national. We opened warehouses in Salt Lake City and in Nashville, because supplement companies wanted their inventory closer to customers. We needed Nashville for an eastern presence and Salt Lake City for a more centralized, western presence. That was vital to our bigger clients.

To the second half of the question — another thing that sets us apart is omnichannel fulfillment. Our clients are selling on Amazon, D2C, and direct to some stores, so we have that smaller retail B2B component. There’s a wide variety of trade partners that our clients would leverage to grow their businesses, and we developed ProPack into a one-stop-shop for clients so we could handle all those different types of orders which all have different needs as far as getting those processed and shipped in a timely manner. That was key for the supplement clients to have that kind of support.

Then, with the FDA [Food and Drug Administration], they have their rules and we felt it was important to certify our compliance of their rules. We went out to the largest GMP [good manufacturing practice] third-party certification company and had them coach us through the process of becoming completely GMP certified. That was pretty extensive—it required some updating and upgrades in various parts of our technology and changed various ways we operated. But it did bring us to a new level as a company, and that was a big piece of becoming more specialized and supporting the Supplement industry in a bigger and better way.

How has technology been a part of the ProPack growth story and customer value proposition?

Today, custom-built technology is such a huge part of our DNA. I can’t even think about trying to buy software off the shelf because we’ve been custom developing for many years now. Jumping back to the beginning of how ProPack came to be, in 2002 we bought an off-the-shelf software program supposedly designed for third-party logistics, but most of the available software was originally a first-party package that was adapted for third-party. Today there are a lot better choices, but back then, there wasn’t. We decided to make our own and make it really robust. We found a development team in our area and engaged with those guys and started building. We hired a guy who’d been at IBM for a number of years and had some concept of how these things should be put together. He came in on our side of the table and was a liaison between our day-to-day needs for technology and this development team.

Over the course of about a year and a half, we developed and implemented portions of the software and in September 2004 we launched the entire program. It was more than just a WMS [warehouse management system], it was a full ERP system including a WMS component to it and that was highly successful. It did take some time to get all our clients converted, but once we did it was a breath of fresh air, and the technology became a key enabler for growth. We have had a team of developers ever since and they continue to work every day enhancing and modifying the system to continue making it better.

Our clients love it—it has the capability go through the portal and see, in real time, everything going on with their supply chain. If they want back-end information, there is tons of as warehouse data. Some of our clients call it breadcrumbs. They can follow the breadcrumbs for anything—any order, product, and lot number they need to chase down and figure something out. It’s all there for them.

Following the announcement of ProPack’s acquisition, what makes you excited about being part of the Stord platform? How do you expect the acquisition to alter ProPack’s growth trajectory?

A couple of years ago, I thought about how at some point I’m going to have to figure out what our next big move is as a company. I’m not going to be here forever, nor are my three business partners. We looked at lots of options. We didn’t like a lot of them, quite honestly, because we have a strong culture we wanted to continue. We wanted to make sure we found the right fit.

We could see there were certain organizations rolling up the sector and thought—either we’re going to compete with them, or we’re going to join one of them. Some I wasn’t too excited about as a potential acquiror, but then when I got to know Stord, I saw a similar culture. They were all chips off the same block, so to speak. They had software that was complementary to ours, and an incredible OMS [order management system] that sits in the cloud layer and can plug different warehouses together to enable clients to use any set of warehouses they want for fulfillment. The list goes on and on of what these guys can do, and they have got a super strong development team that continues to move their software forward. We saw that as complementary. They also really liked the idea of our supplement specialization.

Like Sean Henry, the CEO of Stord, often says, “It’s one plus one is three in this situation.” The way I put it is the whole is greater than the sum of the parts. I felt like the combination with those guys is going to put together an organization that really has a lot to offer our industry and nothing but growth ahead of us.

Given your recent deal with Stord, what would your advice be for another entrepreneur like yourself who is trying to figure out what to do at this next stage?

Do the homework. There are a lot of different options and each entrepreneur looking for an exit probably has different goals in mind. Whether it is just purely financial, or they are truly looking for a cultural fit. There are a lot of directions you can go. I would just say, do the homework, surround yourself with the right advisors, and know your options before you get too serious about any of them. The Capstone team has a great understanding of the sector and was an invaluable partner through our journey and eventual sale to Stord.

To discuss the impacts of sector M&A activity, provide an update on your business, or learn about Capstone's wide range of advisory services and Warehousing & Fulfilment M&A knowledge, please contact us.

Izzy Jack, Associate, was the lead Market Intelligence contributor to this article.

Endnotes

1. Ryder, "Ryder System First Quarter 2024 Earnings Release Conference Call," https://s29.q4cdn.com/533725779/files/doc_financials/2024/Q124/1Q24-Earnings-Call-Transcript.pdf, accessed July 23, 2024.
2. Ryder Systems, "Ryder to Acquire Impact Fulfillment Services; Will Add Contract Packaging and Manufacturing Capabilities," https://investors.ryder.com/news-events/News-Releases/news-details/2023/Ryder-To-Acquire-Impact-Fulfillment-Services-Will-Add-Contract-Packaging-and-Manufacturing-Capabilities/default.aspx, accessed June 26, 2024.
3. Caisse de Depot et Placement du Quebec, "Metro Supply Chain Acquires SCI Group," https://www.cdpq.com/en/news/pressreleases/metro-supply-chain-acquires-sci-group, accessed July 11, 2024.
4. Stord, "Stord Acquires ProPack, Nutrition and Supplement Fulfillment Leader with Temperature-Controlled Warehouses across North America," https://www.stord.com/newsroom/stord-acquires-propack-fulfillment-across-north-america, accessed June 26, 2024.
5. Stord, "Stord Expands Operations with Acquisition of Pitney Bowes’ State-of-the-Art Fulfillment Center in Kentucky," https://www.stord.com/newsroom/stord-acquires-pitney-bowes-fulfillment-center, accessed July 31, 2024.