FitzMark Acquires Reliable Source Logistics, Consolidating Indianapolis Freight Brokerage

FitzMark has acquired Reliable Source Logistics, forming a larger freight brokerage that executives project to bring in $200 million in revenue this year. FitzMark, founded in 2006, employs 80 brokers and ended 2018 with revenues of approximately $95 million; Reliable Source was founded in 2016 and brought in nearly $50 million in revenue in 2018.

FreightWaves spoke to FitzMark Director of Operations Doug Starnes and the former CEO of Reliable Source, Seth Litt, who now serves as FitzMark's Director of Sales and Business Operations, about the deal.

Litt said that Reliable Source had grown rapidly in its first two years and was at the point where it needed to add overhead. The brokerage still had a fairly loose structure with no Chief Financial Officer or dedicated IT department. Meanwhile, FitzMark grew its revenues more than 40 percent last year and saw the acquisition as a smart way to keep accelerating growth by adding a proven team of brokers.

"Growing at the pace we were, it wasn't an easy decision to sell, but strategically, for the long-term, it made sense to become part of a bigger player," Litt explained.

The two shops have different approaches to the market that Starnes and Litt believe will complement each other. As the younger, smaller operation, Reliable Source Logistics focused on reefers hauling food and beverage freight, had a heavier spot market presence, and used a cradle-to-grave model with a single broker handling the entire transaction. FitzMark is set up on the ‘Chicago model' that splits the customer-facing salespeople and carrier representatives, built its own automated less than truckload (LTL) platform called Dash, and does a lot of contract freight business.

"We created a unique hybrid in the short-term to see how it works," Starnes said of the acquisition. All of Reliable Source Logistics' brokers are moving into FitzMark's headquarters on the near east side of downtown Indianapolis.

Starnes and Litt emphasized the compatibility of the two brokerages' cultures, and said that they worked through the merger in a transparent way, making sure the similarities and differences were understood.

"We haven't lost any employees through this," Starnes said.

The executives said that they're making further adjustments because the 2019 freight market is widely expected to look much different from the previous year.

"In 2018, we saw the [electronic logging device] mandate and asked ‘what kind of year is this going to be?'" Litt said. "We went to the spot market and it really paid dividends. This year we're looking at it a little differently – looking more at contract – and FitzMark really knows what they're doing with that."

Freight brokerage – matching loads to trucks – is a math problem governed by Metcalfe's Law, which states that network effect grows in proportion to the square of the total number of users. In other words, as brokerages grow their customer volumes and carrier networks, they have an exponential, not a linear advantage, over their smaller competitors. That basic mathematical fact causes freight brokerages to seek scale as rapidly as possible, both organically and through acquisition.

In addition, with an estimated 16,000 registered freight brokers in the United States, the industry is quite fragmented, with many opportunities for high-growth companies to acquire smaller, high-quality peers. There are two factors that may accelerate consolidation in freight brokerage this year. First, a macroeconomic slowdown could lead to flattening freight volumes, making acquisition the easiest way to add revenue. Second, if digital brokerages continue to automate freight-matching and are able to sustain margin compression, competitors will need to rely on the network effects that come from ever-larger economies of scale.

"I'm beyond excited to take this next step alongside the hardworking professionals from Reliable Source," said Scott Fitzgerald, owner and president of FitzMark, in a statement. "In a short amount of time, Reliable Source has proven itself a key player in the industry by consistently providing high-quality service through 24/7 availability and a strong network of reliable carriers. By joining FitzMark, Reliable Source will be able to offer its customers greater capabilities and accelerate its growth trajectory on a larger and more robust platform with increased focus on technology integration."

Don't miss it. Register today.

Want more content like this? Click here to Subscribe

Permalink