Organizations that thought they had diversified their supply chains, done all the necessary supplier due diligence, and understood where their vulnerabilities were got a rude awakening in 2020: Their supply chains were actually a hot mess and costing them money and competitive advantages.
In response, many companies, like American Eagle Outfitters, began looking to M&A transactions to boost their supply-chain capabilities and resiliency. The clothing retailer acquired Quiet Logistics, a fulfillment technology company, in 2021. The deal gave AEO access to Quiet Logistics’ network of local distribution centers throughout the US, streamlined inventory management, and sped up customer delivery times.
“An important pillar of our strategy is transforming our supply chain to create greater agility, speed, and diversification,” Jay Schottenstein, AEO’s executive chairman and CEO said in a statement after the $350 million deal was announced.
Creating supply-chain flexibility, speed, and transparency has taken on a new urgency post-pandemic for organizations of all types.
The need to respond to the pressures of supply-chain uncertainty and volatility is leading to a spike in supply-chain mergers and acquisitions (M&A), particularly in transportation and logistics, supply-chain technology, and warehousing space according to PwC’s Deals 2022 midyear outlook.
“M&A is a great mechanism to accelerate change and transformation in a business,” John Potter, PwC partner and US deals sector leader, told CFO Brew.
As of May 15, M&A deal activity in logistics and transportation was up 6% in the last year according to PwC, with a significant increase in local market deals versus cross-border acquisitions. This growth in supply-chain M&A is being led by a recognition of the strategic importance of supply-chain management, according to one expert.
“Supply chain has been elevated, generally, over the last couple of years into a more C-level conversation for almost every organization out there,” Mary Rollman, principal and national lead for supply-chain strategy and analytics at KPMG, said. “And now the conversation goes to, ‘How can we strategically make moves to purchase, to partner differently, with our trading partners across our industry?’”
Patching the holes: To fill some of the gaps exposed by the recent tumult, companies are looking to fill a wide range of strategic supply-chain imperatives with acquisitions from inventory management, to supply-chain visibility technology, to manufacturing capabilities.
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To boost its last-mile delivery and inventory management, retailer Target acquired shipping and delivery technology companies Grand Junction and Deliv as part of its “stores-as-hubs strategy” shift. A lot of companies are looking to bring their distribution and delivery systems closer to customers, Rollman said, buying partners to become part of their networks.
Show me the (VC) money: In a report released earlier this year, market-research company Pitchbook found that supply-chain startups raised $10.9 billion in venture-capital investments across 256 deals in Q4 2021, an increase of 8% from the year prior.
Technology that provides companies a clear picture of all parts of their supply chains is in particular demand. An August survey from McKinsey found supply-chain visibility was a top priority for companies. Some 67% of those surveyed said they had implemented dashboards for end-to-end visibility in their supply chains, and according to McKinsey, those companies were twice as likely as others to have successfully weathered the supply-chain disruptions that were acute earlier this year.
Bindiya Vakil, co-founder and CEO of Resilinc, a supply-chain visibility tech platform, said that she is approached about an acquisition of her company every week.
“Companies have realized coming out of the pandemic that they really lacked visibility where parts are made, stored, and distributed around the world,” Vakil said. “So that’s the capabilities companies are now investing in.”
And it’s not just manufacturers or retailers buying up supply-chain tech firms. Consulting firm Accenture recently acquired Inspirage, a company that helps clients navigate complicated supply-chain issues.
Companies are also looking to take more control of production by purchasing manufacturing capabilities through M&A. Cummins, a diesel-engine manufacturer, bought parts supplier Meritor, in a $3.7 billion deal earlier this year.
No matter which capability organizations are looking to add with M&A, the underlying strategic motivation is building resilience and protecting against supply-chain uncertainty and disruption, said Potter.
“This is more about how to plan effectively and how to manage that reality than how to avoid it,” he said.—DA