Transportation and logistics stocks are the future, something I’m a little surprised about. Turns out, while everyone was watching initial public offerings for Skims, Discord and the like, the logistics sector has come out in force for IPOs in 2024.
The motivation behind an IPO is typically for a privately held company to raise capital in hopes of expanding. Also, venture capitalists may use IPOs as an exit strategy to receive their return on investment in private rounds of funding. While, yes, selling shares of ownership does mean that senior leadership loses some control over the business, it’s a fantastic opportunity to grow the company at a strong clip. Occasionally, though, there have been instances when companies in the logistics space have returned to private ownership, most notably Echo Logistics.
As for the current spate of logistics companies going public, Dan Howard, a managing director and head of North America transport at Goldman Sachs, said in a Wall Street Journal article, “This year we’ve seen more IPO pitches in the transport space than the last few years combined.”
The volatile freight market over the past few years had many owners putting IPO plans on hold until the market calmed down. Lineage Logistics, a massive temperature-controlled warehouse company, is leading them back with a $30 billion valuation led by Morgan Stanley. As of right now, there isn’t a date for Lineage’s IPO, but the company is leading the pack in the logistics IPO sector.
Most of 2023 had investors essentially in an IPO logjam, where they were wary of throwing money at new products and innovations. Nvidia was the one to break that logjam. It jump-started a fair number of other companies to debut on the market.
In the same way that just about every company was getting investment money in 2020 and 2021 as investors had all this pent-up capital to spend, the coin flipped and investors are looking for ROI, which is driving companies to go public. Investor pressure combined with a recessionary freight market has reduced the inflated market prices.
In early 2022, the Federal Reserve started to raise interest rates, which caused a lot of companies to put their IPO plans on hold. One specific one, according to the Wall Street Journal article: “New York-based digital freight broker Transfix in 2022 abandoned plans to list via a merger with a special-purpose acquisition company that aimed to raise up to $375 million.”
Bankers and advisers have remained cautious about valuations and investing in tech-focused logistics companies as we’ve seen some struggle, such as Convoy going out of business and Flexport pushing back IPO plans. The companies everyone is looking for are those that have specializations and are still profitable despite the downturn in the freight market.
Market Check. The national Outbound Tender Reject Index is at 4.89%. Within that average, there is expected to be some individual market volatility. Green Bay, Wisconsin, takes that to new heights as its OTRI dropped 32 basis points week over week to 11.51%, nearly three times the national average of 4.11%. Most markets saw some volatility surrounding Memorial Day, but few have had OTRI elevated as long as Green Bay. Rejections remaining above 10% does indicate there could be elevated spot rates in the market, and that will likely continue as summer kicks off and produce season travels up north.
Who’s with whom? Denim, Denim, Denim, the freight payment company whose name triggers the Mario theme, has made some big moves in the way of a new $63 million warehouse from Silicon Valley Bank in partnership with Trinity Capital. Denim has raised $235.4 million since being founded in 2017, previously as Axle Payments. In 2022, the company rebranded into what we know and love today as Denim.
Quoted in FreightWaves’ FreightTech Friday was Sean Smith, vice president of product at Denim: “We doubled our invoices last year, again. Our clients love how Denim is reimagining factoring to maximize flexibility. For example, clients decide which loads to factor and control rate discounts by extending payment periods. With our new $63 million warehouse facility, we can maintain this level of flexibility and scale our client servicing.”
The more you know
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