Figure 1 - Complexity of getting goods to customers [i]
Industry players have been keen to take advantage of the current climate, which is experiencing high levels of liquidity and capital, driving an increase in both deal volume and valuation multiples[ii]. DC Advisory’s US Transportation, Logistics and Supply Chain Technology team has aided clients in adapting and capitalizing on the investment and digitalization opportunities in a post-Covid market, closing 14 M&A deals in 24 months in the space.
But what does this mean for the next 12 months? The global pandemic has forced companies across all industries to evaluate their supply chains and as such, deal flow is being driven by the following key trends:
- Global disruptions – how can M&A solve the challenges and complexities?
- A digital future – businesses leveraging established technology via M&A to better serve their customers
- Private equity activity – premium valuations for large platform opportunities that address these issues
DC Advisory’s Transportation, Logistics and Supply Chain Technology team explore the driving forces for momentum in the space >
Can M&A solve global disruptions and complexity challenges?
Increased consumer demand of goods during and post-pandemic[iii] has fuelled growth in the eCommerce space, but continues to add pressure to global supply chains. New challenges have been revealed, including:
- heavy capacity constraints of labour and shipping capacity;
- stoppages, detentions and congestion at ports;
- decentralization of shipping and inefficient packaging; and
- acceleration of reverse logistics and returns management
As a result, many businesses turned to M&A and technology to solve supply chain disruption issues (see figure 2) by expanding networks and integrations, in order to enable more real-time data sharing. For example, DC Advisory recently advised DiCentral on its sale to TrueCommerce, which expands TrueCommerce’s multi-enterprise commerce network and further cements its position as a leader in digital supply chain collaboration tools.
Figure 2 - Accelerated shifts in global supply chains & purchasing behaviors [iv]
The future is digital
The pandemic left large businesses with no option but to ‘digitize’ to navigate market disruption and volatility. In the past two years, digital connectivity has proven essential to business operations, by providing visibility and tracking to manage the increased delivery demand. Many businesses have turned to M&A to leverage established technology and platforms to outpace the competition. For example, DC Advisory recently advised rfXcel Corporation on its sale to Antares Vision Group, which allows for a completely integrated, end-to-end software solution for track and trace globally. This transaction, amongst many others, shows the market’s demand and interest in transacting with firms in the digital sector.
In addition, technology is being leveraged to make existing assets more productive, and to find excess capacity, thereby eliminating bottlenecks, reducing costs and streamlining processes. For example, DC Advisory recently advised Tenstreet on its majority growth investment from Providence Equity Partners, which addresses the issue of labour shortages throughout the pandemic with an end-to-end SaaS platform that simplifies driver hiring processes and day-to-day recruitment tasks.
In an industry with over USD 1TN in annual spend[v], digital payments also represent a significant opportunity. Much of the industry is still processed via checks or electronic fund transfers – carriers, brokers and drivers now desire to be paid faster – based and people-centric documentation to electronic automated and digitized formats. Though a relatively new trend, we expect to see increasing M&A in this area in the coming year, with digitalization once again being necessary to streamline both company and market growth.
Big-ticket M&A propels global market activity with sponsors paying premiums for platform opportunities
Driven by the estimated USD 2.3TN of dry powder and unprecedented fund sizes,[vi] private equity activity skyrocketed in 2021, with buyer activity increasing 64%.[vii] Aggressive activity across the industry increased valuations; deals valued between USD 1-5BN saw over a 115% increase in aggregate deal value in 2021 vs 2020[viii]– showing sponsors’ willingness to pay premiums for large platform opportunities. Acceleration of investment from private equity has created North American and European platforms seeking growth through acquisitions, with many sponsor-backed firms completing bolt-on acquisitions (see figure 4 below). For example, Veson Nautical, a global leader in maritime freight software, completed a bolt-on acquisition shortly following Francisco Partners recent significant growth investment in Veson Nautical (DC Advisory served as Francisco Partners’ advisor).
Figure 3 – Multiples of recent Transportation, Logistics & Supply Chain Tech transactions (Apr ’19 – Apr ’22) [ix]
Figure 4 – Recent private equity platform activity in North America and Europe[x]
We expect to see these trends persist into 2022 as private equity continues to deploy significant amounts of capital. Additionally, capital raising and venture capital activity remain unabated, with venture investments nearly doubling year-over-year in the United States[xi]. Similar to private equity, the industry experienced record amounts of fundraising and capital deployment, which supported robust valuations[xii]. For example, FourKites - a developer of a supply chain visibility platform providing real-time visibility data automation and predictive analytics - raised approximately USD 100M of funding to accelerate product innovation and implement rapid growth[xiii].
Figure 5 – Aggressive venture capital activity in the industry [xiv]
With the sector at the early stages of technology adoption, there are many areas in which efficiency has the potential to mitigate delays and overcome complexities in global supply chains. Interest from buyers and investors will likely continue to accelerate quickly, and there will remain ongoing M&A opportunities in the coming year and beyond.
We expect to see significant investment interest from both private equity and venture capital in the following areas:
- Control tower platforms that aggregate and connect many disparate systems – consolidating decentralized business functions, data and communication in one place
- Visualization and predictive analytics – for processing vast amounts of captured data
- Visibility and tracking solutions – to enable better forecasting, planning and optimization of people, goods and assets
- Workflow automation technology – to streamline and increase efficiency in otherwise labor-intensive and time-sensitive areas of the supply chain
- Repair and maintenance software – to reduce downtime and extend the life of assets while maximizing efficiency
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