M&A Forecast 2021: Logistics Deals Soar, as Covid Fuels E-Commerce

After the extraordinary challenges of 2020 – which included the coronavirus pandemic, the polarizing presidential election and the increased awareness of racial injustice in the U.S. – dealmakers are eagerly embracing 2021 with open arms.

It may turn out to be a spectacular year for M&A. The high level of activity experienced at the end of the old year is expected to continue in the new year. The traditional January pause seems unlikely, as M&A pros race to wrap up deals before likely changes in taxes are forged with the new federal government.

There is some uncertainty about the next few months, especially about the role of federal government. Without more stimulus, there will be a “grim winter,” said Béla Szigethy and Stewart Kohl, the co-CEOs of private equity firm the Riverside Co., in an interview with Mergers & Acquisitions. But even if the winter is bleak, there will be a “resurgence of economic activity in the spring,” the co-CEOs predicted.

The combination of pent-up demand for deals and the wide distribution of Covid vaccines is expected to fuel “robust” dealmaking.

At Mergers & Acquisitions, the editorial team has identified four sectors in which we predict activity will be especially high in 2021: Logistics, Cryptocurrency, Telehealth and Education Technology.

Here’s Our Forecast for the Logistics Sector

The pandemic has greatly shifted the logistics sector. Consumers shopping more online while quarantined is putting pressure on businesses to improve their last-mile services.

According to a forecast by research firm eMarketer, U.S. e-commerce sales will reach $794.5 billion in 2020, up 32.4 percent in 2019, and Amazon’s share will grow to 39 percent in 2020.

FedEx’s (NYSE: FDX) purchase of ShopRunner shows just how paramount e-commerce has become. ShopRunner provides shipping services for more than 100 brands.

“The acquisition, once closed, aligns with our continued efforts to create an open, collaborative e- commerce ecosystem that helps brands and merchants deliver seamless experiences for their customers,” says FedEx chief operating officer Raj Subramaniam.

“Logistics is a historically fragmented industry. Business owners that have navigated the pandemic – whether successfully or unsuccessfully – may seek opportunities to become a part of a larger platform. So, the opportunity is there for larger companies with broader platforms and scale to offer,” says Harris Williams managing director Frank Mountcastle. “Companies with the ability to bring big solutions such as e-commerce to the small shipper will continue to be valuable.”

For example, Tom Gores-led Platinum Equity is buying Ingram Micro from HNA for $7.2 billion. Ingram offers supply chain technology such as warehouse management and transportation management systems.

Businesses looking to ramp up their e-commerce and last-mile services will be attractive to buyers in 2021. “The top investment priorities for most firms we speak to include last-mile logistics and time-critical logistics,” says Lincoln International managing director Gaurang Shastri (pictured).

Pandemic Impact
The coronavirus has elevated demand for rapid delivery of products in certain sectors, particularly in food, healthcare and household and cleaning. Companies that are focusing on these areas and are weathering the pandemic will be attractive M&A targets.

“Not only has the ongoing shift in consumer behavior from restaurant dining to grocery delivery impacted the food supply chain, the likelihood that the Covid-19 vaccine solution will require temperature-sensitive modes of delivery will create a tremendous opportunity for logistics providers with proven cold chain expertise.

Third party logistics providers involved in the distribution of a potential vaccine have the opportunity to be some of the real “heroes” in helping end the pandemic,” says Mountcastle. “Buyers will be acutely focused on how companies are faring with the pandemic, evaluating who is able to drive performance through such cycles and how. Naturally, buyers will look at companies that are successfully weathering the storm. Those best-in-class companies that were well-positioned will emerge on top. What better way to evaluate a team to back than to look at how they led their companies through the pandemic? We expect continued focus on the managers running the businesses, which is particularly important in a service focused industry like third party logistics.”

Last Mile
In today’s quarantined environment, when consumers order something online, they expect to get it right away and that is creating demand for efficient supply chains. Businesses that have strong and reliable last-mile networks will attract buyers.

For example, LongueVue Capital-backed Select Express & Logistics, a provider of last-mile delivery and assembly services, has acquired Go Configure, a consumer delivery, assembly and installation business. Last-mile is the final segment of the delivery process where products get transported to their final destinations. An efficient last-mile network can help avoid mishaps, such as delivering empty packages.

“We see a significant demand for companies that can assemble and manage the complex resources needed to operate flexible supply chains efficiently and without disruption while meeting both producer and consumer demands,” according to a SDR Ventures distribution and logistics M&A report. “As consumers were getting used to a ‘buy it now, get it now’ environment, 2020’s global Covid pandemic sent shock waves through distribution networks. The pandemic shined a spotlight on the importance of the global supply and distribution environment more than any single event in recent decades.”

Software Solutions
Logistics providers need help from technology to improve their last-mile services. Software can help businesses keep track of their fleets and pricing. Companies that have technology with these capabilities are valuable. “Overall, the logistics industry
has embraced the importance of technology. There has been a systematic shift in expectations about the ability to communicate real-time information throughout the supply chain as well as to the end-consumer. While a basic technology offering has become expected in today’s market, logistics providers can very much develop a competitive differentiator through technology,” says Mountcastle.

In one recent deal, Hudson Hill Capital has acquired a majority stake in InXpress Holdings Ltd., a software provider to the transportation and logistics sectors. The target’s software helps small and medium-sized businesses manage their logistics services with customer service and pricing.

“The importance of building scale, providing end-to-end solutions and investing in technology will continue to drive much of the M&A activity in 2021,” says Shastri. “The increasing complexity of the supply chain has driven a heightened level of consolidation in the sector which remains highly fragmented both in North America and Europe. M&A is viewed by many companies as an expeditious way to solve deficiencies in their own portfolio of solutions, technology and/or footprint.”

Keeping Drivers Happy
The trucking industry is facing a severe driver shortage. Logistics companies are coming up with ways to mitigate these shortages by increasing driver’s pay, emphasizing safety and reducing fleet capacity. The successful ones will see buyer interest.

Omnitracs is acquiring transportation technology company SmartDrive. The combined companies’ software will help with driver routing, dispatch and safety. “The Covid-19 pandemic has underscored the significant role of commercial drivers, as the trucking sector has been instrumental to ensuring the availability of critical medical supplies and equipment, as well as essential consumer goods,” says SmartDrive CEO Steve Mitgang. “Given the long-standing shortage of qualified drivers and high turnover rates, creating and sustaining a favorable driver experience is imperative to fleets’ success.”

According to the Council of Supply Chain Management Professionals state of logistics report, transportation comprises 66 percent of total logistics costs. “Failing to proactively manage the transportation network can cause these costs to rise as trucking challenges such as driver shortages and productivity-hampering trucking regulations constrict capacity in the years ahead,” the report says.

From growing demand in online shopping to companies looking to upgrade their transportation technology, the pieces are in place for robust M&A.

For more on Mergers & Acquisitions’ coverage see the following:

M&A Forecast 2021: Cryptocurrency Deals Take Off, as Bitcoin Skyrockets

M&A Forecast 2021: Telehealth is Suddenly the Norm, and Deals Follow

M&A Forecast 2021: Education Tech Deals Surge, Driven by Remote Learning