Logistics Provider LINC Hopes to Deliver a $115 million IPO

Third-party logistics, or "3PL," is a fancy name for companies that manage the warehousing and delivery of physical inventory on an outsourced basis. So, for example, if you have a business that manufactures sheet metal widgets, you might bring in a third-party logistics provider to coordinate incoming shipments of parts from your suppliers and deliver finished products to your customers. That allows you to focus on doing what you do best -- building widgets, presumably -- while a 3PL vendor takes care of the complex and capital-intensive task of orchestrating the movement of stuff from place to place.

That logic explains why third-party logistics has become a big industry. According to a report from Armstrong & Associates, the market for outsourced logistics services reached about $127 billion in 2008, up from $30.8 billion in 1996.

While the recession has taken a toll on the industry, this is likely to be a short-term phenomenon, because corporate America needs to find ways to reduce costs amid the nation's slow-growth business environment.

One top provider of third-party logistics services is LINC Logistics, and it's clear that the firm is optimistic about the future: LINC has filed for a $115 million IPO. The lead underwriters on the deal include Citigroup (C), Stephens Inc., Stifel Nicolaus and KeyBanc Capital Markets.

From Trucks to Technology

The origins of LINC date back to the 1930s, when the company began operating a regional motor freight carrier in Detroit. Over time, LINC transformed its business model, and today the company provides customers with a suite of supply chain logistics services, such as material handling, kitting, repacking, returnable container management, ocean freight forwarding and so on, through 31 facilities across the U.S., Canada and Mexico.

To provide better service, LINC has developed proprietary information technologies that integrate into customer systems to enable real-time supply chain visibility. Also, LINC's engagements tend to be long term, which means revenue stability: The company has provided services to its top five customers for an average length of 18 years.

What's more, LINC uses an asset-light approach. In other words, the company can fairly easily add scale -- at a low cost -- when there is new business. This flexibility has been important during the current downturn. In fact, LINC has generated positive operating income for the past nine quarters.

Rising with the Tide

While LINC already has a strong footprint in the automotive industry, it needs to expand into other categories. For example, there should be opportunities in higher-value logistics services for automotive sub-assembly and sequencing. Other segments where it sees growth opportunities include aerospace, technology and medical equipment. Since 2007, LINC has seen its non-automotive revenue share go from 6.7% to 17%.

Basically, LINC has a valuable platform, a proven success record that goes back for several decades, and a service offering that may appeal to customers in other industries.

But for IPO investors, those may not be primary considerations. Essentially, investors want to see quick returns. In that vein, industry watchers think the third-party logistics industry is ripe for a comeback: Armstrong & Associates reports that the segment is forecast to grow by a nice 13.4% for 2010. If true, those kinds of numbers should get the attention of investors of all varieties.