Global economic recovery from Covid has vastly increased the demand for logistics and distribution services, which has outpaced supply. As a result, firms have shifted due diligence efforts for prospective investments to be increasingly focused on firms offering supply chain resilience. Dealmaking is back on the table for private equity firms focused on Asia.
According to data provided by K&L Gates, a global law firm, from the beginning of 2022 through August, there were 53 private equity deals involving logistics and supply chain. In comparison, in 2020 and 2019 deals totaled just $7.9 billion and $5.1 billion respectively.
Private equity firms looking to invest in global supply chain in Asia should note a few of the critical changes that have affected investment in the region. The first noteworthy factor is the barely reduced political and economic tensions between the U.S. and China. Secondly, the health crisis sped up a question firms have already been asking: Is it wise to have supply chains focused so much on China? Thirdly, the U.S. and China have diverged on pandemic management from the beginning.
As a result, private equity firms would be wise to expand global, Asian supply chain investments outside of China. According to McKinsey, China accounted for 35 percent of global manufacturing output in September. Now, dealmakers are diversifying productions out of the country, without entirely leaving, to mitigate risk and eliminate the heavy reliance on supply chains in China.
Instead, firms aim their sites towards Central and Eastern Europe, Vietnam, India, Medico and Malaysia. “One-third of companies with global supply chains have moved their sourcing and manufacturing activities out of China or plan to do so in the next two to three years,” says a 2020 survey from market analysis and research firm Gartner.
Due to the changes within Asia, dealmakers are refocusing due diligence efforts within the supply chain space. Concerns regarding supply chain operations are under more scrutiny in the acquisition timeline and supply chain pressures are influencing post-acquisition strategies at a greater degree.
Where do you think supply chain trends and innovations are headed next? Let me know at [email protected].
–Cole Lipsky
