October 08, 2021

Supply Chain Woes and Pent-Up Demand Move Industrials M&A – Panel Mergermarket

By Sydney Halleman in Charlottesville, Virginia and Sam Weisberg in New York

Problems in the global supply chain as well as pent-up demand from the COVID-19 pandemic are influencing industrials dealmaking, sector advisors said in a panel hosted by Mergermarket.

Industrial sectors such as logistics are “on fire” due to companies aiming to solve issues in the global supply chain, said Ben Gordon, a managing partner at Cambridge Capital who pointed to 1H21 as an “all-time high” for deals in the US.

“People have come to realize that supply chain is more important than ever,” Gordon said. “And that’s caused people to be more interested in investing in or acquiring businesses in the space.”

Other sectors for growth include supply chain tracking, a service that has been boosted by Amazon’s [NASDAQ:AMZN] robust supply tracking system, and reverse logistics, he said, adding that there are acquisition opportunities in that area. Recent deals in the supply tracking space include project44’s USD 225m acquisition of Convey, Gordon said, and Cambridge has also made investments in shipment tracking.

Freight forwarders, aiming to solve challenges with product transportation between Asia and the US, have also been doing well in dealmaking, said Kris Hopkins, head of transportation and logistics at Houlihan Lokey. Companies that are involved in import and export, such as port compliance operations, have also seen “strong growth,” Hopkins said.

North American companies are being incentivized to onshore operations as Asian product sourcing continues to ramp up in cost, Gordon said. The cost of shipping a container from Shanghai to Long Beach has increased in a year from around USD 3,000 to USD 20,000, an almost 7x cost increase that is “very inflationary and disruptive,” the Cambridge partner added.

“More and more US companies are trying to put more of their inventory, supply chain, manufacturing into North America, US, Canada, Mexico,” he said. “I expect you’ll see more growth in North America supply chains and more deal activity in those same areas.”

A “cadre” of deals, especially on the sell-side, could be reached in 4Q21 and early 2022 as the COVID-19 disruptions that occurred in 2020 begin to wane, said James Nappo, managing director at Stifel.

Tax reforms and hikes expected next year are also contributing to increased deal activity as clients seek an exit before they take effect, said Abby Roberts, a senior director of product marketing at Datasite, pointing to an “avalanche of deals” coming toward the end of 2021.

Respite from COVID-19 lockdowns has not disrupted certain industrial sectors like last mile delivery and ecommerce, said Gordon, saying that the demand in the last mile sector is strong and continuing.

“There won’t be a reverse as people feel more comfortable going out,” Hopkins said “It’s too easy, too efficient to order online.”

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