Covid-19 has spurred dramatic increases in digital investment by businesses and expedited the penetration of technology into every corner of the global economy. Two of the chief beneficiaries of this structural shift have been software providers who can help clients automate workflows, deliver applications via the cloud and enable remote working, as well as digital-native e-commerce platforms.
It should come as no surprise, then, that the providers of software that underpin global supply chains and distribution networks have enjoyed a particular boom period. Sitting at the intersection of two buoyant segments of the digital economy, logistics software companies have seen their valuations rise markedly. Of the biggest publicly listed companies in this space, Wisetech Global’s share price has risen by 110% since April 2020, Descartes Logistics Solutions’ by 114% and Manhattan Associates
These rising valuations have also driven M&A activity. Strategic buyers have sought to strengthen their position in a lucrative market while financial investors – both retail and institutional – want exposure to a booming sector. The resulting flurry in deals can be grouped into three major themes within logistics software: supply chains, e-commerce and digital freight-forwarding.
Let’s take supply chains first. Covid-induced national lockdowns brought fragile domestic, regional and global supply chains to a grinding halt. The initial outbreak underscored the importance of critical markets like China to international trade and the globe’s inter-connectivity. As the spread of the virus accelerated, companies were caught off guard and had to rapidly re-adjust to a new reality. This propelled the adoption of technological solutions to manage logistics and build resilience into supply chains.
These dynamics motivated Panasonic’s $5.6bn acquisition of Blue Yonder in a bid to drive faster, more context-aware business decisions for global supply chains and to offer corporate clients the ability to pivot operations in real-time.
Other strategic acquisitions by tech companies seeking to improve visibility of supply chain performance and allow clients to rationalize their end-to-end operations included Coupa Software’s $1.5bn acquisition of LLamasoft, a leader in AI-powered supply chain design, and, more recently, E2open’s $1.7bn acquisition of cloud-based logistics execution platform BluJay Solutions.
Financial investors have also been active in this space, in both public and private markets. Shortly prior to its acquisition of BluJay, E2open had been taken public via acquisition by CC Neuberger Principal Holdings I, a special-purpose acquisition company (or SPAC), in a deal valuing the company at c.$2.6bn. Meanwhile, this June, private equity firm Thoma Bravo announced its $2bn take-private acquisition of QAD Inc.
We see a similar pattern in e-commerce. The pandemic has transformed consumer expectations around choice, flexibility and speed of delivery when buying online. Retailers and their distributor partners have responded through strategic acquisitions. For example, FedEx’s purchase of the e-commerce platform ShopRunner will connect its customers to over 100 brands and offers two-day delivery. This forms part of FedEx’s
E-commerce activity is not just consigned to acquisitions by bigger and more established players. Shipbob, which provides a merchant application to customers, enabling them to track inventory and liaise with warehouses to select items, as well as integrating a number of shipping companies on its platform, has seen its valuation soar to over 1$ billion in its latest private financing round. ShipMonk, a provider of direct-to-consumer fulfilment and technology solutions to help e-commerce providers scale operations, recently raised $290 million in a funding round led by Summit Partners
Finally, we come to freight forwarding, the business of moving cargo on behalf of importers and exporters. Traditionally low-tech and analogue, the industry has recently enjoyed elevated levels of fundraising as earlier-stage growth investors recognize the opportunity for tech companies that can digitize these labor-intensive, manual processes. Businesses to have recently benefited from an injection of capital include Convoy, which raised $400 million in a series D round of funding, and Sennder, which raised $80 million in funding, at a valuation of over $1 billion, taking its total funding raised to date to over $350 million.
But we can expect a rise in M&A activity imminently as well. Demand for digital freight forwarding functions is driving the ‘Uberization’ of the market, whereby automated functions allow customers to search for road freight carriers, and find cargo shipment requests, at the click of a button. Technology is also giving shippers and their shareholders greater visibility into their carbon footprints which is turning out to be a big differentiator in the new era of sustainable capitalism.
Established e-commerce giants are taking note and recalibrating accordingly. Where companies like Amazon, JD.com, Lazada and Alibaba previously used online platforms to reinvent retail models, they are now building their own digital platforms and logistics footprint. We can therefore expect that many of these players, alongside the likes of UPS, DHL and XPO logistics, may look to integrate these capabilities through M&A.
The pandemic has sharpened companies’ focus on their supply chains, driven investment by e-commerce platforms and accelerated a restructuring of the digital freight forwarding industry. These are an attractive set of tailwinds for companies offering software that builds resilience into supply chains, enables e-commerce platforms to meet customer expectations and helps an old-economy industry like freight-forwarding embed tech solutions. In the post-Covid digital economy, these shifting paradigms will mark out logistics as a particularly active niche within software.
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