Good morning dealmakers, thank goodness it’s Friday.
It’s Obey Martin Manayiti here with the newsletter. To cap off the week, and welcome the spring season, I have got two interesting trends that caught our attention here at PE Hub this week.
I will start with six deals that are unsnarling the global supply chain, and we will get some thoughts from Conrad Grajczak, a director at Insight Sourcing Group PE practice on what private equity firms and their portfolio companies should do to cut supply chain related costs.
I will also detail another set of PE deals that are capitalizing on the post-pandemic travel boom.
Unsnarling the supply chain
Private equity-backed supply chain deals flourished in 2021 and 2022, as businesses that were forced to close or limit operations due to covid came roaring back to life only to run into shortages and snags. In 2023, companies that help ease the movement of goods are still attracting PE investors.
“Opportunities are generally in two key areas,” Ken Koenemann, TBM’s vice president of supply chain explained.
The first involves “digital platforms that integrate all parties across the supply chain to create better visibility of status of orders and where they are in the entire supply chain.”
The second involves supply chain risk management, which, he said, is a newly emerging opportunity. He defined it as “leveraging technology to identify risks in your supply chain based on shutdowns, slowdowns, geopolitical challenges, regional and country economic situations, etc.”
In a deal announced in January, Harbor Logistics, a portfolio company of NOVA Infrastructure, a New York based PE firm, acquired ATS Logistics, a Charleston, South Carolina-based provider of transportation and warehousing services.
Asset-heavy transportation and logistics companies act as critical infrastructure, especially in high-growth ports that are constrained by their existing asset base or infrastructure footprint, NOVA founder and partner Allison Kingsley told me.
When asked if demand is cooling off as the macroeconomy slows, Kingsley said NOVA invests based on long-term fundamentals, and the firm identified southeast ports and certain types of asset-heavy transport and logistics investments as sustainable and attractive investment targets.
“During times of weaker demand, frequently local providers consolidate to deal with leverage issues or economies of scale,” she said. “By encouraging and funding some of this consolidation, it may improve efficiency and allow us to better position ourselves for a return to recovery or growth. Because we are acquiring smaller businesses and consolidating, this slower period may very likely present opportunity instead of risk.”
The bullwhip effect
In supply chain, the bullwhip effect refers to a situation whereby small fluctuations in demand at the retail level can cause bigger shortages in the whole supply of goods from the distributor or manufacturer.
This is exactly what took place as pent-up demand of goods occurred during the pandemic. However, as the covid-induced volatility subsides, companies need to rethink their supply strategy, said Conrad Grajczak, a director at Insight Sourcing Group who partners with PE operating partners and the management teams of their portfolio companies to drive value through strategic sourcing.
Factors that clogged the supply chain and triggered high prices are settling, including high ocean freight costs, and Grajczak said PE firms and their portfolio companies must take advantage of the situation to renegotiate competitive and cost-saving terms. The other way to turn a corner on high prices is to be strategic about sourcing, including rightshoring, he added.
“A lot of our clients have been concerned with supply chain shortages over the past couple of years, but a lot of that is behind us now. It’s time to turn around and get on the offensive to negotiate prices back down,” said Grajczak.
Vacation, all I ever wanted
As the covid pandemic recedes, travel has been on an upsurge, reported my colleague Iris Dorbian. According to a study conducted by the US Travel Association, travel spending was 4 percent above 2019 levels in January.
Private equity firms are betting big time on the vacation and leisure space, which can run the spectrum from resorts and spas to amusement parks and vacation rental platforms. Whether you’re a snowbird riding out the winter in the Caribbean or a ski bum enjoying the slopes of Aspen, it’s safe to say that the sector is no longer a seasonal trend. It can be year-round.
Starting from a year ago, PE Hub looks at five notable deals that have leveraged the boom in this sector since the lifting of pandemic travel restrictions.
New York City-based mid-market PE firm Court Square Capital invested in Lexington, Kentucky-based Five Star Parks & Attractions, a developer and operator of family entertainment centers in March. Among the attractions Five Star offers are go-karts, arcades, bowling, thrill rides, laser tag, mini golf and other family-oriented entertainment.
With this investment, Five Star’s existing shareholders, which include Fruition Partners, Taubman Capital, and management, will remain significant minority investors in the company.
For Joseph Silvestri, co-founder and managing partner at Court Square, Five Star’s “unique platform” and formidable positioning in the market were attractive to the PE firm. “Five Star has many of the characteristics we look for when partnering with founders, families, and manager-owners,” he explained.
In April last year, Trinity and Oaktree Capital generated industry chatter with their acquisition of Hyatt Regency Indian Wells Resort & Spa, a top resort hotel located in the Greater Palm Springs area.
For Trinity and Oaktree, the acquisition had a pronounced appeal for them as the area hosts several popular events that attract travelers from all over the world, which include the Coachella Valley Music and Arts Festival, the Stagecoach Festival and the BNP Paribas Open tennis tournament. Also, figuring significantly in the deal’s allure were the demographics of those who tend to gravitate toward the region – retirees and high-net-worth individuals.
At the time the transaction was announced, John Brady, managing director and head of the global real estate group at Oaktree, referenced the latter two groups while praising the “growth of the greater Palm Springs hospitality market.”
That’s it for me today. You can reach out to me at firstname.lastname@example.org.
MK Flynn will be back with the Wire on Monday.
Have a great weekend.