Global supply chain weakness draws increasing PE investment
The last three years have seen a steady rise in US PE deal value in supply chain tech as the pandemic, the war in Ukraine and the rise in ecommerce combined to reveal weaknesses such as a lack of data and analytics and outmoded technology.
Last year, 53 PE deals in the US supply chain sector accounted for $20 billion in total deal value, up from 37 deals totaling $7.9 billion in 2020, according to PitchBook data. In 2019, deal value totaled $5.1 billion.
It’s hard to predict future deal value and count, and current market and economic conditions could pose challenges for investors. But Nick Antoine, a co-founder and managing partner at Red Arts Capital, a supply chain tech-focused PE firm, told PitchBook in an email that he believes there will be continued investment in the supply chain sector.
“The pandemic-related supply chain challenges we have all experienced over recent years [have], I think, created a new level of appreciation for the importance of the sector as part of our general economy,” Antoine said. “Growing demands in ecommerce as well as automation are major drivers of growth, and we expect to continue to invest in warehousing-related services in an effort to take advantage of these continued trends,” he wrote.
Operating warehouses and managing delivery to consumers have been top priorities for many PE firms in the past year, PitchBook private equity analyst Jinny Choi said. These priorities have been driven by the growth in ecommerce, she added.
“Supply chain tech capabilities in tracking, inventory management and last-mile fulfillment are crucial to [meeting] the demand for visibility and control in online retail,” Choi said. “Efficient networks of warehouses that leverage technology to speed up delivery times and run efficient inventory management will have the competitive advantage in ecommerce.”
Meanwhile, in the M&A space, logistics real estate company Prologis recently agreed to combine with Duke Realty—which owns more than 160 million rentable square feet of industrial assets—in a deal valued at $26 billion.
While investments in supply chain tech are gaining steam, certain challenges could hinder deals in the sector.
“Current turbulence in the market could slow down deal activity as PE firms assess changes in valuations, and fears of a recession could dampen consumer activity, which could impact businesses’ outlooks for supply chain tech companies that are involved in the flow of goods and services,” Choi said.
However, Choi also indicated that the long-term growth aspects of ecommerce, digitalization and globalization have created a stable outlook for opportunities in the supply chain tech sector this year.
Antoine believes the complexities of supply chain businesses make it imperative for private investors to understand the inner workings of the sector and sub-sectors that support the overall supply chain ecosystem.
“Our belief at Red Arts is that those with deep knowledge of our sector are best positioned to weather and address economic challenges,” he said.
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