The largest Canadian freight brokerage, FLS Transportation Services, announced that it has acquired Scott Logistics, a Georgia-based brokerage with an estimated $155 million in revenue. The combined entity brought in revenues estimated at $500 million in 2018. The deal continues the consolidation trend in recent years among third-party logistics providers (3PLs), a shift driven by the fragmentation of the logistics industry, tight labor markets and a flood of capital from private equity.
"Scott Logistics is one of the fastest growing 3PLs in our space," said FLS CEO John Leach in a statement. "Scott's focus has been on its people, processes and technology and that has driven true value for its customers. The combination of FLS' 30-year cross-border expertise with Scott's deep U.S. carrier network will significantly increase our scale and coverage in the highly fragmented truckload brokerage space. It truly is the perfect North-South combination."
FreightWaves spoke to Leach and Jay Matthews, President of Scott Logistics, by telephone. Abry Partners did not respond to a request for comments.
As Scott's founder and CEO Diane Manis approached retirement age, she wanted to take some chips off the table and started thinking about her exit. About five years ago, Manis began building an executive team to create a new strategic plan and manage the succession. Meanwhile, in 2016, Abry Partners, a Boston-based private equity firm, recapitalized FLS and put the company on a steeper growth trajectory.
The deal came together because Scott Logistics offered FLS greater network density in the United States and FLS could backhaul opportunities out of Canada to American carriers, lowering costs for Canadian shippers. Leach and Matthews said that the acquisition was focused on leveraging the network effect to grow both sides of the business rather than simply buying EBITDA and finding synergies to cut costs further.
"When I was brought on," Leach said, "we really had two core strategic focuses – one was developing an internal pipeline of sales folks to train and grow entry-level people with a really defined process… FLS historically had started branches by hiring people with experience, so there was no pipeline of new folks. The second part was definitely around M&A."
Both FLS and Scott are decentralized, branch-structured organizations, which made melding them together easy, Leach said. FLS has six offices in Canada and four offices in the United States (Atlanta, Chicago, Springfield, Missouri, and Salt Lake City), while Scott has six branches in the southeastern United States. The only overlap is in Atlanta, but Leach said there are no current plans to consolidate those offices.
Matthews explained that part of the cultural fit between the two brokerages is the maturity and professionalism of their workforces. Half of Scott Logistics' account managers are women.
"We are very customer-centric and focused on doing things the right way," Matthews said. "That helps us retain customers, and we have retained great customers 10 years or more."
Matthews said that Scott Logistics has been evenly split between contract and spot business over the last 12 months, but that it was aggressively participating in bid season to win more contract freight this year. It is widely expected that spot volumes and prices will be soft in 2019 compared to last year. Leach said that FLS was about 55 percent contract and 45 percent spot, a mixture that his team adjusts up or down five percent based on market conditions.
"We have a view in the RFP process that 2019 is going to be deflationary compared to 2018, so we decided to be more aggressive in bidding," Leach said.
FLS is currently in the early stages of implementing the Revenova transportation management system (TMS), a TMS built on top of Salesforce. Leach said FLS liked Revenova because of its ability to tie into visibility providers, and the fact it can be customized by FLS as the company builds internal technology. At some point, when the implementation is complete, Scott Logistics will likely adopt Revenova as well.
Abry and FLS are still actively hunting for M&A, Leach said, looking mostly at cultural and organizational fit, both at branch-based brokerages and centralized shops.
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