Good morning, dealmakers. MK Flynn here with today’s Wire.
As regular readers of PE Hub know, the global supply chain has become a topic of fascination for me. My initial interest began in early 2020, when we saw how the shutdown of China’s factories delayed delivery of products all over the world. Then in early 2021, the Ever Given container ship got stuck in the Suez Canal, underscoring the complicated interconnectedness of the supply chain. Now in 2022, we’re seeing more disruptions due to Russia’s invasion of Ukraine, and increasingly people are talking about onshoring, nearshoring and a return to localizing the supply chain.
Throughout these disruptions, private equity firms have been seizing the opportunities to snatch up logistics companies that aim to solve some of the inherent problems. To find out more about what the PE model brings to the supply chain table, I turned to Steven Liff, senior partner and head of private equity North America at Sun Capital Partners.
Sun’s investments in the logistics sector have been growing recently. In January, Sun bought Total Transportation Services, a provider of drayage transportation services. TTSI just made its first add-on acquisition since Sun invested and its sixth since 2019.
Last June, Sun bought Century Distribution Systems, a global digital logistics provider of supply chain management and freight forwarding services.
“We are seeing freight volumes at record highs, and we expect demand to remain elevated for several years,” Liff told me. “This increase has been fueled by the continued growth of e-commerce, especially during the pandemic. Now, with retailers and manufacturers looking to restock low inventory levels, we see a need for investment and operational improvement in a sector which has been highly fragmented.”
When I asked how the private equity model can help companies like TTSI and Century, Liff said:
“These companies have a similar value proposition to other service sectors, such as benefits of scale, benefits of expertise and outsourcing, high fragmentation, manual processes in need of optimization, and a need for technology investment. We see an opportunity to leverage the same operational toolkit that we apply in other service industries, and believe there are meaningful opportunities in consolidation, professionalization of processes and data analytics, investment in IT systems and automation, cost control and asset management.”
What’s the future for private equity-backed deals in this sector?
“We’ve all seen the intense focus on supply chain dynamics over the past several years. It has really driven home the critical role that these companies play in moving goods globally and getting products to market,” Liff said. “Beyond the capital that private equity can bring to the table, we think PE has a big role to play in helping supply chain companies professionalize and modernize operations, make investments in new technologies and capabilities, improve internal processes, build scale and accelerate growth.”
Read the full interview here.
Inside the exit. PE Hub reporter Obey Martin Manayiti has also been talking to investors in supply chain services.
Obey spoke with Gerry DeBiasi, a partner at Kidd & Company, and Ted Wong, a principal at Firmament, about their sale of Logistyx Technologies to E2open for $185 million in March. Logistyx develops software aimed at optimizing parcel shipping, and demand for its software was fueled by the rapid rise of e-commerce during the pandemic.
Q1 takeaways. After a volatile first quarter, US PE investors anticipate a steadier future, according to PitchBook’s Q1 2022 US PE Breakdown. “PE investors closed 2,166 deals worth a combined $331 billion, as the war in Ukraine wreaked havoc in lending markets, and banks held onto billions of dollars in syndicated loans for LBOs,” the report says.
“Despite an ongoing focus on ESG, the turbulence in the energy sector is likely to create opportunities for investors in traditional oil and gas assets,” the report predicts.
This is a trend we’ve been exploring recently. For more on PE opportunities in oil and gas, see Obey’s recent interviews with Adam Waterous, founder of Waterous Energy Fund; and Ben Dell, co-founder of Kimmeridge.
On PE exits, PitchBook said: “Exit value totaled just $90.0 billion last quarter, as exits to other sponsors held steady, but public listings all but disappeared.” And on fundraising:
“The overall fundraising environment remains positive, yet the fight for commitments is fierce, as GPs return to the fundraising trail quickly and seek more capital than LPs can provide.”
For more on fundraising, see Buyouts’ ongoing coverage buyoutsinsider.com. We’ve highlighted some of the recent stories in the Also of note section below.
That’s all for now. I’ll be back with tomorrow’s Wire. (Note: Chris, who usually writes the Wire on Wednesdays, will write Friday’s Wire this week.)