Warehouse automation was already a growth sector but it has shifted into a higher gear since Covid-19.

“The pandemic has accelerated trends,” says Leo Mahon, a managing director at Kroll based in Chicago. The firm’s recent industry report on industrial technology spotlighted warehouse automation and forecast a compound annual growth rate of 8 percent for the sector, so that it would reach $40 billion in sales by 2030 from $20 billion now.

Amazon, the leader in online sales, announced in May that it plans to reduce its excess warehouse capacity by anywhere from 10 million square feet to 30 million, but Mahon dismisses the Amazon situation as “not indicative.”

Prologis estimates that logistics users need at least 800 million square feet of additional space for inventory growth. At the end of the second quarter, Mahon notes, there was warehouse vacancy of only 3 percent and the utilization rate was 86 percent. “There is a dearth of excess space,” he says.

Inventory turnover in the big e-commerce and big box players – Amazon, Walmart, Home Depot, Target, and Lowe’s – has been declining, which is costly and eats into profit margins. The need to boost inventory turnover is a major force driving growth in warehouse automation.

This means continued growth in mergers and acquisitions in the sector, spurred by labor shortages and “re-shoring and near-shoring,” this M&A specialist says.

Amazon has set up a $1 billion fund for seeding automation, while Walmart robotics maker Symbotic went public in June via the SVF Investment Corp. 3 SPAC.

“Traditional venture capital is very active in this sector,” says Mahon, “and private equity has a significant tailwind.”

Omnichannel warehouses fulfilling brick-and-mortar demand as well as online purchases are boosting this growth. The focus is on “integrators,” which can design an automation package, but extends to the other two M&A buckets of software and physical material handling, says Mahon.

Convergix, for instance, an integrator backed by PE firm Crestview Partners, has targeted three to five acquisitions a year as it acquired AGR Automation in August.

Kroll’s industry report highlights the fragmentation in the industry even as buyers look for end-to-end solutions. “The integrator market is fragmented, presenting investment opportunities for consolidators,” the report says.

And these consolidators can be anywhere. The Kroll specialists deal with a lot of sell-side firms but the acquirer, strategic or investor, can be in Europe or Asia.

Whether on-sourcing or near-sourcing, says Mahon, “this is a global phenomenon.”

Darrell Delamaide