Businesses are hoping supply chain issues will completely wane in 2023, but it is hard to say for certain if and when that will happen. Regardless of how market conditions play out, the logistics sector will be an important one to keep an eye on for M&A this year.

“We believe logistics players will continue to merge to drive synergies, achieving greater international scope, enter into higher margin industries or expand to a greater set of multinational customers in the name of more effectively serving the needs of their customers,” says Sam Heischuber, a managing director at Santa Monica, Calif.-based Angeles Equity Partners.

Send Me a Driver Please!

The U.S. has a dearth of truck drivers and that problem isn’t going away anytime soon. A combination of aging drivers heading into retirement, those who left the industry during the pandemic, a lack of work-life balance, and a lack of time to train new drivers are among the factors contributing to the shortage.

One way transportation companies are looking to resolve this issue is by buying companies that already have a fleet of established drivers, especially those that have a specific geographic focus.

In November, Ascend LLC acquired Fuchs Trucking LLC out of Sauk City, Wis. to expand its presence in the upper Midwest, while growing its fleet to more than 1,100 tractors and 3,200 trailers. Ascend, which is backed by Wellspring Capital Management, was formed in January 2022 through the merger of Milan Supply Chain Solutions and J&B Services. Fuchs marks Ascend’s fourth acquisition since last January and the company said it is looking for more deals.

“Adding Fuchs to the Ascend family strengthens us in the upper Midwest,” Ascend CEO Michael McLary tells Mergers & Acquisitions. “We want to continue to increase density there, at “home” in the Southeast and will look opportunistically as potential acquisition targets become available to expand West.”

Keep Drivers Happy

Transportation companies are getting creative with filling in labor gaps so they can get goods delivered on time while keeping drivers happy. One way they’re doing this is by buying up local warehouses, says one investment banker.

“Goods have to get to all parts of the country,” says New York-based Carl Marks Advisors partner Chris Parisi. He adds that drivers are demanding a better work-life balance, so now companies are being forced to shorten hauls. “It used to be a driver would drive 600 miles a day and then sleep in the cab and do it again the next day. Now companies are saying ‘How do we keep drivers in their beds at night more often?’ Everyone would rather sleep in their own bed than sleep in the cab. The only way to do that is to make the hauls a little bit shorter. And the only way to do that is to purchase other facilities. In the case of transportation, you have to buy more relay yards. Yards that are only 250 miles apart so a driver can get there and back the same day so he or she can be at home, but it requires more assets, and you have to have yards in closer proximity to each other.”

In August, real estate investor GID, which has offices in Atlanta and Boston, bought an industrial warehouse in Littleton, Mass. GID’s industrial real estate investment strategy includes buying facilities that are in close proximity to end customers. Some of GID’s tenants include logistics companies.

Keeping drivers on the road, especially when they have the opportunity to stay close to home, is one of the reasons why Ascend acquired Fuchs, according to McLary. “I expect the driver shortage will persist until carriers use technology and strategic planning to redesign their networks to suit evolving driver preferences (first and foremost, the need for home time), says McLary. “We are making progress in that direction through the combination of the deployment of our optimization software, insights from our analytics team, and increased density from the acquisition of Fuchs.”

Who’s Going to Run This Warehouse?

Buying a warehouse, or building one, is the easy part for logistics companies. But finding people to staff them during a labor shortage crisis is another story. Automation is helping businesses grapple with labor scarcities and supply chain challenges, and there is a lot of attention being paid to robotics as a result, especially from big name retailers.

“We believe robotics and automation (and the software that supports both) will continue to be an attractive sector,” says Heischuber. “We do not anticipate availability or affordability of labor to improve, so businesses will need to adopt ways to maintain their current operations and throughput with automated solutions.”

Last October, Walmart said it updated one of its distribution centers in Texas with technology from Symbotic as part of its long-term plan to digitally transform its warehouses. Modernized distribution centers will be heavy on technology improvements, including robots, to save on labor while increasing speed and accuracy which automation is designed to do.

Symbotic offers robotics and other AI-powered automation technology to warehouses to help them improve supply chain efficiency, a service that is much needed amid labor shortages. In 2021, Walmart expanded its commercial agreement with Symbotic across all 42 of Walmart’s distribution centers. Walmart said it will take at least eight years to upgrade all of its warehouses.

Why PE Likes Supply Chain Tech

Every company across almost every industry needs a robust supply chain system to succeed, and businesses that have technology that can help the logistics sector stay efficient are catching buyers’ attentions.

“We are still in the early stages of the migration from supply efficiency to resiliency,” adds Heischuber. “We continue to see supply chain disruptions affecting a majority of businesses across industrial end markets.”

In September, Philadelphia-based LLR Partners invested in Vantage Point Logistics, a provider of supply chain management software to healthcare organizations.

Westerville, Ohio-based Vantage Point says it has developed the healthcare industry’s only smart supply chain software platform, which automates inbound and outbound shipping and shows the status of critical shipments.

In another deal that took place in October, Chicago-based private equity firm Frontenac invested in Zipline Logistics. Zipline, headquartered in Columbus, Ohio, is a tech-enabled, third-party logistics firm that focuses on the food and beverage, consumer packaged goods and healthcare sectors. Zipline’s technology helps its customers track shipping, manage data and invoicing.

Whether its technology or real estate, it seems logistics M&A in 2023 will have something for everyone.