FreightWatch raises $10m

Business grows as cargo theft increases, regulations mount
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Monday, July 26, 2010

AUSTIN, Texas—With an eye toward developing new technology and possible M&A activity, logistics security firm FreightWatch International announced this month a $10 million capital raise led by Bridge Investments, with help from Egis Capital and the Kroll family.

This is the first equity raise in the company's 12 years, said CEO Barry Conlon, and though it remains difficult to raise funds in this economy, "we see cargo theft really on the rise. We're seeing a demand and more and more requests for locations that we're not currently in." To meet that demand, FreightWatch need some capital to grow quickly. Conlon said to look for new locations "not in the short term, but in the middle term."

Conlon said the recent success the company has had is largely predicated on its philosophy of focusing on logistics first and security second, with employees hired who can speak the language of those in charge of shipping and logistics at the large multi-national firms that make up FreightWatch's customer base.

"It's almost a different language you have to learn," Conlon said. "Logistics is complex. It's a vibrant environment that's constantly changing ... And that's why technology has been successful for us. We can say, ‘Do you know it's going to help your logistics as well? And you'll have control of that information and won't have to rely on a third party for that? And here's the benefits from the anti-theft side of things.' That's been hugely successful."

As for what's causing the increase in cargo theft, Conlon said he was unsure, but that the increase is undeniable. "Pharmaceutical theft four or five years ago wasn't even on the radar," he said. "And when it did occur, it was probably a mistake and it would turn up a day later. Now it's actively being targeted. So, where are these goods going? Are they going overseas? Or maybe through legitimate channels? People wouldn't typically take prescription drugs unless they knew they were legitimate, but now, during trying economic times, maybe that's more acceptable."

Steve Jarmel, principal of Bridge Investments, said this increase makes FreightWatch's services invaluable, and thus a good investment. "Pharmaceutical companies can't afford not to spend a few hundred per shipment when they have millions on the carrier," he said. "There are consumer safety issues, as well," he noted, and even before the Eli Lilly heist there was already pressure being levied by the federal government for pharmaceutical companies to tighten up their security operations.

"More importantly," said Jarmel, "the insurance premiums [for many industries] are going up dramatically and the insurance companies have great incentive to reduce theft." He said Bridge's due diligence before making the FreightWatch investment showed them most companies saved more money on insurance than they paid out to implement FreightWatch's solution.

"That's what we looked at as investors," Jarmel said. "Was it a real mission-critical need? We found that it was."