Logistics deals deliver for investors as supply chains struggle

Logistics, packaging and shipments companies are using M&A to expand their service coverage and future proof

If 2020 was defined by the humanitarian crisis of the coronavirus pandemic, then 2021 has been the year of supply chain breakdowns. Bare shelves and rising prices have been a familiar sight as companies struggle to stock products to meet resurgent consumer demand.

It's a theme that has imprinted itself on M&A too. According to a recent survey of 100 decision-makers in the UK logistics industry conducted by BDO, 42% of respondents say they are likely to make acquisitions over the next 12 months, the highest level since the survey began nearly a decade ago. The main drivers behind this appetite for deals are achieving economies of scale and expanding service offerings, ultimately to grow revenues and operating margins.

The UK has felt the supply chain snarls of 2021 especially acutely, having had to manage the effects of Brexit on logistics. Not only has its departure from the EU added red tape to the movement of goods across the border but driver shortages have emerged. Foreign workers went home during the pandemic and in many cases stayed.

Asia's opportunities 

No country has been immune to ongoing supply chain pressures, and logistics companies and strategics have spotted an opportunity to gain scale or improve their services.

The largest deal across the logistics, packaging and shipments space so far in 2021 has been the acquisition of a 51.5% stake in Hong Kong's Kerry Logistics Network by Chinese express giant SF Holding for US$3.5 billion, creating the largest group of its kind in Asia. SF said the move will help expand its international footprint and freight forwarding operations through Kerry’s extensive Southeast Asia network and its strength in US and European trade lanes.

Asia is the biggest exporting continent in the world, claiming around 42% of all exported goods, Europe taking second place with close to a 37% global share. And the region has been notably dominant in recent deal activity. Of the ten largest deals recorded by Mergermarket in the logistics, packaging and shipments space, six involved Asian acquisition targets. And these were by no means exclusively strategic deals between corporates.

The second largest after Kerry Logistics saw a consortium of financial sponsors including Sequoia Capital, CMB International Capital, Hillhouse Capital Management and others back Indonesian courier J&T Express in a US$1.8 billion private funding round. The company is understood to have plans to list on the Hong Kong Stock Exchange and expand into Latin America.

Even if J&T were to stay in its home market, there is no shortage of potential. The World Economic Forum estimates that by 2030 nearly 76 million Indonesians will join the so-called consumer class of people that spend more than US$11 a day, adjusted for purchasing power. This will make it the fourth-largest consumer market in the world after China, India and the US.

In a further sign of private equity's recognition of the opportunity, many of the same sponsors in the J&T funding also backed a US$1.5 billion round for Lalamove, a Chinese startup that has been billed as an “Uber for logistics”. Names that participated in both deals include Sequoia Capital and Hillhouse Capital alongside others like Tiger Global Management and Vitruvian Partners. Lalamove connects freelance drivers with individuals and small businesses that need items transported.

Prime deals

Some of the largest US players in logistics and retail are also highly active. In September, UPS bought Roadie, a same-day local delivery platform that connects people with items to send with drivers already heading to the required destination. This deal falls firmly into the service expansion category, Roadie offering shipments that are incompatible with UPS's established network because of their size or perishable nature and often because they are in shopping bags rather than packed boxes.

Notable deals include Amazon’s buyout in May 2020 of INLT, which develops software for sellers to manage costs and customs clearance associated with often-complicated cross-border sales processes.

Taking it to the skies

This is just one example of the increasing technification of logistics. A growth area that is drawing considerable attention is the use of drones, or unmanned aerial vehicles (UAVs), for the use of everything from transporting cargo to surveillance for inventory management purposes.

Google’s drone service, Wing, has completed more than 100,000 deliveries and is growing rapidly. In 2020 the service made six times more deliveries than in 2019 and in the first quarter of this year alone beat 2020's full-year performance. The service, which was trialled in Australia, is planned to launch in the US, initially in the suburbs of Dallas-Fort Worth.

In June, a consortium comprising Fidelity, Intercorp, Emerging Capital Partners and Reinvent Capital invested US$250 million in Zipline, valuing the San Franciscan businesses at US$2.75 billion. Zipline designs, manufactures and operates drones and supporting software, primarily delivering vital supplies to hospitals. It therefore ticks not one but two boxes in the context of the pandemic: mounting pressures on the health system as well as logistical bottlenecks. There is seemingly no shortage of appetite for deals that solve both of these clear and present challenges.

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