Readers of Farm to Frozen have been anticipating Lineage’s IPO for some time now. Going back to the last article, we predicted the imminent initial public offering and its monopolization of cold storage headlines.
Founded nearly 16 years ago, Lineage is the world’s largest global temperature-controlled warehouse REIT. The company began trading on July 25 as a Nasdaq-listed company under the ticker LINE.
With the offering now behind us, let's take a look at the ways in which Lineage’s newly raised $4 billion in equity will impact the cold storage industry.
Increased Competition
With Lineage’s aggressive growth strategy and expansive global footprint, its IPO proceeds are likely to fuel further expansion. The battle for market share will intensify, leading to more robust services and competitive pricing in the short term. This is a good thing for existing operators looking for exit strategies or those having difficulty generating succession plans. In the long term, expect analyst pressure to increase revenues, through price increases and additional fees, in addition to growth through acquisition. Further, algorithmic and dynamic pricing will prove to be a competitive advantage in markets with multiple operators.
Technological Advancements
Lineage’s IPO windfall provides them with an opportunity to invest further into cutting-edge technology. Having already developed in-house initiatives like Lineage Eye for pallet scanning, and Lineage Link as a customer platform, expect to see advancements in automation, data analytics and supply chain management. With this technological flywheel, expect to see greater efficiencies for the customer, leading to better service and ultimately a stickier experience. Other operators who do not invest similarly will risk falling behind.
Investor Confidence
The successful IPO signals institutional investor confidence in the cold storage sector. Lineage’s $4.4 billion offering, at an implied valuation over $18 billion, demonstrates extraordinary appetite for this space. The headlines and future analyst coverage will bring even more exposure to the cold storage industry, a space that has for too long been under the radar. Participants in our industry all will benefit from this increased exposure – and frankly – education about the industry. Expect financing, investment and capital markets to be more receptive to the cold storage, refrigerated processing and distribution space. As the investor base gets more sophisticated, so too will the industry as a whole. This is a great thing for anyone already in the space.
Environmental Impact
It goes without saying that Lineage’s global market share means that its large network of facilities plays a crucial role in reducing worldwide food waste and the food industry’s environmental impact as a whole. As a public company, Lineage’s commitment to environmental responsibility will be closely scrutinized. Expect to see an ESG “arms race” between Americold and Lineage. Investors and sustainability-focused customers will put pressure on these two firms to make more explicit commitments to sustainability. The resulting practices may become standard operation among other operators looking to capture similarly minded customers.
Customer Focus
In Lineage’s prospectus, it acknowledged a customer concentration vulnerability. It stated that 25 of their largest customers account for about 32% of total revenue. Should any of their biggest customers leave (“Which they are generally free to do,” the prospectus said), it would be a major blow to Lineage’s performance. Expect a renewed effort to grow its mid-sized customer accounts with possible favorable pricing and an increased focus on contractual term lengths. If you are a competitive existing operator with mid-sized customers, expect them to be getting phone calls from Lineage’s team.
The Lineage IPO marks a pivotal moment for the cold storage market. As Lineage continues to grow and innovate, its influence will ripple through the industry, shaping the future of temperature-controlled logistics. On one hand, operators must adapt and stay agile to keep up, however on the other, operators looking to grow their business will benefit from the tailwinds of a better educated and more enthusiastic investor pool.
