Logistics Giant Lineage Raises $4.45 Billion In Biggest Ipo In 2024

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Jennifer Saba

NEW YORK, July 23 (Reuters Breakingviews) - The food business has a necessary evil – cold storage – and public investors are about to have a crack at buying shares in the company that nearly has the market cornered. The sprawling U.S. landscape means the likes of Conagra Brands CAG.N, Unilever ULVR.L, Kraft Heinz KHC.O, and Walmart WMT.N have to pay refrigerated facility-owners like Lineage LINE.O, a real estate investment trust founded in 2008, for space to house their meat, cheese, and frozen vegetables. The steady nature of the business and lack of established companies is partly what makes Lineage valuable. With scale and an acquisitive culture, the upcoming initial public offering, the biggest so far this year, deserves the premium Lineage is asking.

The food storage business as a whole is pretty steady, and not that exciting. The industry is expected to grow 3% annually over the next five years, according to IBISWorld. Lineage does better on a same store basis, with sales last year jumping 6% compared to Americold Realty Trust COLD.N, which grew at the pace of the industry. The fact that it has more warehouses closer to the consumer – 76% versus Americold’s 42%, according to Green Street Advisers – helps.

Still, it’s the nature of Lineage's growth overall that makes it valuable. The Michigan-based company was founded by two former Morgan Stanley MS.N investment bankers, Adam Forste and Kevin Marchetti, who had a yen for dealmaking. The first facility they bought was a warehouse in Seattle, and since, Lineage has made 116 acquisitions in the fractured industry mostly run by mom-and-pop owners. In the most lucrative market, North America, Lineage commands 30% share by cubic footage while the next biggest Americold, has 19% share, Green Street says. Another one-third is comprised of smaller players.

Size matters in this business. Giant food producers want to partner with larger facilities that can handle distribution across the country rather than rely on stringing together several independent owners. Technology and consistency are important factors too. Lineage, with its size, could using pricing power to its advantage.

The deal has risks. The company has incurred loads of debt to buy up all that real estate. Proceeds from the IPO will go to paying it down, not to future growth. Plus, at the high end of the price range, Lineage will be worth $19 billion, giving it a capitalization rate, a reflection of the valuation relative to the operating income, of approximately 6.6%. That’s much less attractive than Americold’s 8%. In a world with higher interest rates, Lineage's yield isn't all that attractive.

Pricing the IPO at the lower end of the range gets Lineage’s cap rate to 7.4%. Investors might prefer that safety. But with a dearth of public offerings so far this year, this cold business merits a warm reception.

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CONTEXT NEWS

Cold storage real estate investment trust Lineage said on July 16 it planned to raise up to $3.9 billion in an initial public offering, according to a regulatory filing with the U.S. Securities and Exchange Commission. With a range of $70 per share to $82 per share it would give the company a valuation of $19 billion at the high end of the target.

(Editing by Lauren Silva Laughlin and Sharon Lam)

((For previous columns by the author, Reuters customers can click on SABA/ jennifer.saba@thomsonreuters.com ))

Keywords: LINEAGE-IPO/BREAKINGVIEWS (REPEAT)

Adds details throughout

July 16 (Reuters) - Cold storage giant Lineage said on Tuesday it is seeking to raise up to $3.85 billion in its initial public offering in the United States.

The real estate investment trust, backed by private equity firm Bay Grove Capital, is offering 47 million shares at a price range of $70 and $82 each.

The U.S. IPO market is on a rebound this year, after a global slowdown in 2022 and 2023 due to rising interest rates and geopolitical turmoil, as rising hopes of a soft landing for the economy encourage companies to move ahead with their listings.

Lineage will list on the Nasdaq Global Select Market under the symbol "LINE".

The offering is being underwritten by a syndicate of more than 20 Wall Street banks led by Morgan Stanley, Goldman Sachs, BofA Securities, J.P. Morgan Securities and Wells Fargo Securities.

KKR Capital Markets is acting as the lead financial adviser for the offering.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by Shinjini Ganguli)

(( ArasuKannagi.Basil@thomsonreuters.com ;))

Keywords: LINEAGE-IPO/ (UPDATE 1)

July 16 (Reuters) -

• LINEAGE, INC.: SEES IPO OF 47 MILLION SHARES OF COMMON STOCK- SEC FILING

• LINEAGE, INC.: EXPECT THE INITIAL PUBLIC OFFERING PRICE OF OUR COMMON STOCK TO BE BETWEEN $70.00 AND $82.00 PER SHARE

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