The supply chain disruptions of recent years have been a boon for many 3PLs, as they have played a central role in the flow of mission-critical goods. Customers have seen firsthand the value 3PLs can provide in finding scarce shipping capacity, and few will revert to managing logistics themselves. As we head into a more uncertain economic environment with the potential for less volume, true market leaders will emerge from the pack based on the greater sophistication and value they bring to their customers. This tends to benefit well-capitalized platforms better able to invest in people, technology, and scale.
2023 Outlook - January 12, 2023
Whether it's the recession-resistant automotive aftermarket or the cross-industry criticality of third-party logistics providers (3PLs), the transportation and logistics industry offers value creation opportunities for a wide range of investors.
Here, senior professionals from the Harris Williams Transportation & Logistics Group discuss the most powerful trends creating opportunities across their industry in 2023, and how buyer dynamics are shifting.
Which trends are creating M&A opportunities across your industry?
Supply chains continue to be in the spotlight, and that’s good for 3PLs. While the supply chain crisis sparked by COVID-19 is showing signs of gradually abating, challenges remain and may crop up again in the future. Global companies of all types are intensely focused on improving or even redesigning their supply chains, which, paired with the ongoing shift to e-commerce in many categories, is providing plenty of work for logistics companies.
Global companies of all types are intensely focused on improving or even redesigning their supply chains, which is providing plenty of work for supply chains.
Supply chain challenges, paired with inflation, are also creating opportunities in the auto aftermarket. New and used cars remain scarce and their prices are elevated, encouraging many consumers to keep their current cars longer. That trend benefits maintenance and repair businesses, collision repair businesses, car washes, parts manufacturers, and others.
Larger, professionalized aftermarket platforms have generally been able to manage supply, labor, and inflation. They can also provide fully modern customer experiences and readily service today’s more technologically advanced vehicles, including EVs. That helps them gain share and solidify customer relationships while operating more efficiently, and many continue to perform well. There also continues to be a high degree of fragmentation in this recession-resistant space, providing investors with plentiful opportunities to generate value by investing in scale and sophistication.
How are buyer dynamics shifting in transportation and logistics?
In our core markets, the businesses we represent are generally performing well due to the factors outlined above. Core demand drivers remain strong, creating opportunities for investors to generate value and put capital to work in great companies.
However, some are cautious regarding general economic conditions and how businesses will fare in tougher times. That, plus higher interest rates, is putting a premium on companies with exhaustive data analytics, business intelligence and tech-enabled service offerings that can assist in driving earnings in various market conditions. We think that as market conditions normalize, there will be intense competition for those businesses.
The supply chain disruptions of recent years have been a boon for many 3PLs, as they have played a central role in the flow of mission-critical goods.
Given the increased focus on global supply chains, along with their redesign, optimization and increasing level of development of supply chain support infrastructure, longer-term investors (e.g., infrastructure, sovereign wealth or multi-family offices) are also looking at certain opportunities in the logistics space. The challenge for infrastructure investors is the finite number of “true” infrastructure opportunities, so many are broadening their investment focus to include businesses involved in transportation or logistics services, notably rail, marine, port management, transportation equipment and warehousing. We think this increased interest among infrastructure investors and the like will remain strong for the foreseeable future.