As summer descends on the Northern Hemisphere, it is easy to appreciate the value of keeping the temperature cool – and providing the means to do so counts as vital infrastructure. Two recent deals, each estimated to be worth more than €500 million, neatly illustrate how infrastructure managers can access the cold chain logistics market and why this sector is well worth observing.
In late April, Kuwait Investment Authority-owned Wren House bought a 34 percent stake in the French Petit Forestier Group, a European refrigeration rental truck company. Wren House acquired the stake from Belgian investment company Sofina. In June, EQT followed suit by announcing the take-over of Constellation Cold Logistics, a major European cold storage owner-operator.
The two deals represent two different aspects of the cold chain logistics vertical. Constellation provides nearby storage solutions to producers, while Petit Forestier purchases the truck on behalf of their customers, adds the refrigeration unit and leases the vehicles to customers on long-term contracts for last-mile transport.
Going the ‘last mile’
Constellation is not, perhaps, your common infrastructure asset, but Michael Bloch-Hansen, managing director at Wren House, compares Petit Forestier’s business model with the rail car sector where the buy-and-lease-back model has been used for years. “This model is effectively the same thing, just in the truck space, and more specifically the cold chain aspect of the truck space,” he says.
The business provides a full-service wrap including maintenance and access to back-up, with the latter being crucial in the cold chain storage space, and one of the key selling points. “If you have a breakdown of a truck full of oysters on a hot summer’s day, you can’t sit on the side of the road for six hours waiting for a repairman,” says Bloch-Hansen.
As for its infrastructure characteristics, there are plenty, Bloch-Hansen says: “First, the business operates in a quickly growing and very attractive niche, namely the cold chain market and specifically in ‘last mile’, which we feel is an irreplaceable piece of the value chain.
“Also, the business operates on long-term contracts with a diversified pool of customers that provide high visibility of cashflows. So, as an infrastructure investor, you’ve got a unique market position and contracted cashflows.
“We see it as a business that, unlike many core infrastructure businesses, has a lot of levers to drive value. Today, it operates predominantly on petrol trucks, so it is well positioned to take advantage of the EV transition. Over the next 10 to 15 years, we’ll move with the market and with customers towards predominantly electric vehicles.”
For Wren House, the Petit Forestier deal is the second to embrace the cold – KIA’s infrastructure investment arm bought refrigerated container leasing company SeaCube in October.
“For us, this is a very strategically aligned transaction. It aligns with SeaCube in our portfolio; it follows an asset leasing trajectory that we’ve been on over a number of years, and it plays to the energy transition,” says Bloch-Hansen.
Strong growth potential
While Wren House went for refrigerated transport, Constellation Cold Logistics’s counterparties are usually producers looking for post-production cold storage close to production facilities.
EQT announced an investment through EQT Infrastructure VI into Constellation, bought from Arcus Infrastructure Partners on the expectation of strong growth, explains EQT managing director Francesco Malvezzi. “Within transport and logistics, we believe that the cold chain is a very interesting market with an estimated underlying growth in advance of 7-8 percent per year.”
Among the driving factors are the growing population, which results in a greater demand for food, and the growing recognition among consumers that frozen food preserves quality and limits food waste, Malvezzi explains. “The other aspect is that Constellation can provide value-adding services, for example, packaging or blast freezing.”
The cold storage sector has been of interest to EQT for a while, he says. “It provides an essential service to society with predictable cashflows on the basis of long-term customer relationships. And it is downside-protected because the market is quite stable. There is also significant asset backing.”
There are, if not technical barriers, then practical barriers to entry too. “It has become more expensive to build these sites, and producers want to focus capex on their core activities. Usually, storage is not the core activity for a producer,” says Malvezzi.
The cold storage also benefits from the fallout from covid-19 and geopolitical instability, he says. “There are emerging strategies such as the just-in-case supply chain where producers, but also retailers and distributors, now want to stock more than in the past in case there are other supply chain shocks.”
The company has 27 storage facilities and has been growing since its inception in 2020 by Arcus, which is set to continue. “EQT sees Constellation as a platform that we want to grow either through building or expansion of sites or M&A,” says Malvezzi. “The plan is to stick mostly to current geographies with current customers that either need more capacity or are customers in one of the company’s catchment areas.”
As for expansion options, the cold chain logistics market remains highly fragmented, he says. “From a global perspective, there are a couple of leading US companies with a consolidated presence also in Europe. Among the European players, Constellation is one of the main operators in the market after these global companies. But besides this, the market in general is still very fragmented, which also means that there is a lot of potential for consolidation.”
Constellation is present at 350 sites across Europe, the US, Australia, South Africa, Morocco and the UEA.