Private Equity Invests in the Supply Chain
In the last year, Private Equity (PE) deals in the US supply chain totaled over $20 billion. A significant number, even before context. However, considering that number was around $7.9 billion in 2020, and $5.9 in 2019, that’s exponential growth. Further, considering that the supply chain has been fraught with challenges and disruption stemming from the Covid lockdowns, congestion from increased e-commerce, war in Ukraine, equipment and worker shortages to name a few, one might wonder, “Why all of the PE interest?”
Simply put, some of those very issues that have caused the disruptions are driving investment growth. The explosion of e-commerce is a prime landscape because it’s also nurturing innovation. New technologies or adapting others, like drones, for delivery services are changing business models and making them more profitable.
Partner Rick Giovannelli of law firm K&L Gates LLP says, “It’s a high-demand industry. Many businesses are outsourcing their logistics functions. And we’re still an economy that relies on real physical goods getting places.” He goes on to say, “Increasingly, better deals are at the lower end of the market. PE investors tend to prefer businesses that are light on capital expenditure.They don’t necessarily love to buy a business that owns hundreds of trucks, with environmental issues and a lot of labor.”
SupplyChainBrain writer Robert J Bowman says, “...a number of PE shops have set up ‘growth funds,’ which seek not to take control of nascent businesses as do many VCs, but instead provide equity in exchange for a minority stake. And the lines between early seed money and growth equity could continue to blur, as the supply chain and logistics market matures…”
As focus intensifies on supply chain resiliency, from reshoring, near-shoring, and Customs and Border Protection’s (CBP) new Green Trade Strategy, opportunities for both Private and Venture Capital investment will continue to flourish and grow.
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