Private-equity firms hunt for deals in disrupted supply chains
Summary
- Firms expand their investments as disruption opens opportunities for profit, experts say
The supply-chain crisis has become a profit opportunity for private-equity firms, which have increased their investments in the sector as companies spend more to transport and distribute goods in the wake of the pandemic.
Globally, private equity invested $50.6 billion in logistics in 2021, according to PitchBook Data Inc., a company that collects information on private-fund investments.
That figure is more than three times the amount invested in 2020 and 34% higher than the 2019 sum, which was the previous annual record for private-equity investment in supply chain businesses. PitchBook data show that firms have invested a further $9.1 billion in 74 deals this year through early May despite the global slowdown in private-equity deal making amid macroeconomic anxiety.
Continuing supply-chain issues are “creating huge opportunities" for private-equity firms with expertise in the sector, said Saleel Kulkarni, a partner with consulting firm Bain & Co., which advises private-equity managers.
Mr. Kulkarni said firms are moving to invest where they see supply-chain issues creating an unmet demand—areas like warehouse automation or other key logistical operations that are currently suffering from labor shortages.
Supply-chain and logistics businesses remain a relatively niche investment play for buyout firms. Historically, the segment hasn’t produced the growth rates that have attracted investors to the technology and healthcare sectors, for instance. And it involves a great deal of hands-on experience and expertise that, for smaller firms or those without deep backgrounds in the industry, can be hard to acquire, said Paul Pollock, a partner at Crowell & Moring LLP who specializes in mergers and acquisitions.
“It’s really difficult for a smaller fund to get into the logistics or supply-chain business," he said. “There’s expertise in all of this and if you stray too far you tend to find your own mess."
For established firms that specialize in the sector, however, the disruption that began with the Covid-19 pandemic created a rare opportunity, experts say. As the demand for logistics and distribution services returned and began to outpace supply, costs and spending went up, creating profit opportunities for companies that sit at key points on the supply chain and can raise their prices.
In addition, firms are looking to back services providers that customers fall back on to cope with supply-chain disruptions—such as storage for goods that can’t be shipped, automation for processes slowed by staffing issues and transport to meet the excess demand for shipping created by the pandemic-era shift to online shopping.
Storage businesses figure among the largest supply-chain investments by private equity since 2021. Lineage Logistics Holdings LLC, an operator of cold-storage facilities backed principally by San Francisco firm Bay Grove Capital, has taken on several rounds of new investment, including private-equity money, to fuel its expansion. In addition, Bain Capital and property developer Barber Partners LLC plan a $500 million push to develop their own line of cold-storage facilities, The Wall Street Journal reported this month.
Manhattan Mini Storage, which operates self-storage locations in New York City, was among the largest private-equity takeover targets of 2021 in the logistics space, according to PitchBook. It was acquired late last year in a $3 billion deal by Columbia, S.C.-based StorageMart, whose backers include Singapore sovereign wealth investor GIC Pte. Ltd. and Bill Gates’s family office Cascade Investment LLC.
Other large logistics deals included the merger of shipping companies Worldwide Express LLC and GlobalTranz Enterprises LLC by a group that included CVC Capital Partners and Providence Equity Partners, and Jordan Co.’s acquisition of transport company Echo Global Logistics Inc.
There is little question that the disruptions in the supply chain have created new opportunities for investors, said Ryan Preston Dahl, a partner in the restructuring group at Ropes & Gray LLP.
“A large universe of [sponsors] is well-capitalized to find opportunities created by supply chain dislocations," he said.
This story has been published from a wire agency feed without modifications to the text
