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Recent Investments Drive Into the Future of Transportation

The COVID-19 pandemic and subsequent supply chain crisis shone a light on inefficiencies in the transportation industry. Now technology companies and their investors are helping solve the problem

Recent Investments Drive Into the Future of Transportation

Investors and advisors tracking the transportation and logistics sector have long believed that the industry needs upgrades, since many companies operate in an old-fashioned way—with paper-based record-keeping and little reliance on technology.

The supply chain issues that followed the COVID-19 pandemic exacerbated these problems and set the sector up for a transformation.

“COVID turned the spotlight on supply chain in every business,” says Nathan Feldman, vice president in Transportation and Logistics Investment Banking at Capstone Partners. “The logistics world was pretty antiquated with many companies working on paper systems. A lot of VCs looked at it and said, ‘This is ripe for disruption.’”

This section of the report originally appeared in Middle Market DealMaker’s Fall 2022 issue. Read the full story in the archive.

A lot of recent investment has popped up via venture capital and early-stage growth equity, as well as strategics looking to bolster their platforms, sector advisors say. Many logistics technology companies are poised to grow and become targets for traditional private equity M&A. Some of this activity is already underway at platforms owned by the likes of Vista Equity Partners, Thoma Bravo and others.

Uptick in Investment

According to Capstone’s research, about $10 billion of venture capital went into 240 companies in the past two years in transportation and logistics technology in North America. Some of that activity has been around data companies, artificial intelligence, transportation management software and telematics services, which track cars, trucks and other equipment by using GPS and on-board diagnostics to plot the asset’s trajectory on digital maps.

According to Houlihan Lokey, since 2019 there have been more than 200 M&A transactions in this market in the U.S. with an aggregate value of around $80 billion.

Houlihan began to see a shift toward more technology adoption among transportation and logistics companies back around 2016 and 2017. “Many legacy vendors, repair shops, operators of ports and terminals, and fleet-management companies were all running on paper-based models,” says Shane Kaiser, managing director in the bank’s technology group. Houlihan had a thesis that technology would transform all modes of transportation. “The pandemic accelerated the need for technology to promote e-commerce. Some of the hiccups and pain points in supply chain management led to questions on how to aggregate and make sense of data,” Kaiser says.

Some of the hiccups and pain points in supply chain management led to questions on how to aggregate and make sense of data.

Shane Kaiser

Houlihan Lokey

Now telematics companies are helping track moving vehicles’ location in real time. Data and analytics can also help predict an asset’s repair needs, when it will need work and how much time or expense it will take. “People are buying new less and fixing up more,” Kaiser says.

Venture Capital Activity

Much of the recent investment in transportation and logistics technology has come through venture capital and early-stage investment rounds. According to Capstone’s research, the fundraising in logistics technology reached record levels last year, with tracking and telematics companies, as well as warehousing and inventory management businesses, seeing the most activity. Companies raising additional rounds of capital included digital warehousing and distribution network developer Stord, which received $90 million from Kleiner Perkins, and web-based transportation management platform Emerge, which garnered $130 million of Series B venture funding from Tiger Global Management and 9Yards Capital.

Sector advisors think the flurry of VC activity means that many of these businesses will soon graduate to become private equity targets. “Most of these businesses will need to exit at some point and will be M&A candidates rather than go the IPO route,” says Capstone’s Feldman. These companies could be a good fit for the traditional private equity play of merging sizeable businesses or using a larger platform for tacking on add-ons, he adds.

In anticipation of increased M&A activity in logistics and transportation technology, investment bankers are making more of a concerted effort
to cover the space. At Capstone, it’s “something we’re actively pushing into,” says Feldman.

Related content: Chain Reaction: How Midsize Businesses Are Responding to Supply Chain Disruption

Houlihan Lokey also recently launched dedicated coverage of transportation technology, whose applications span automotive, aviation, heavy/construction equipment, maritime, public transit, rail, supply chain and logistics, and trucking. “Across all modes of transportation, this is
an exciting time for technological development with rapid innovation in maintenance and repair, enterprise resource planning, transportation management systems, telematics, e-commerce and risk management,” a June report from the bank said. “Specific market tailwinds driving investment and tech adoption across the broader market include labor supply dislocation, new sustainability regulations and increased asset complexity,” according to the report.

Strategic and PE Involvement

Large transportation or technology companies—some private equity-backed—have also been active in the sector, buying up startups to bolster their digital offerings. Vista Equity Partners has made a slew of acquisitions in the space, and has tacked on multiple companies to its Solera platform, including Omnitracs, eDriving and Spireon. Texas-based Solera provides risk management and asset protection software to the automotive industry. It was acquired by Vista in 2015.

J.D. Power, the Thoma Bravo-backed consumer research company, has also been acquisitive in the sector. This year it bought Tail Light, an automotive software company, and We Predict, a U.K.-based provider of global automobile service and warranty analytics.

E2Open (NYSE: ETWO), another strategic acquirer active in the area, bought Logistyx Technologies in March. E2Open is a network-based supply chain management platform, while Logistyx offers parcel and e-commerce shipping and fulfillment technology.

According to Houlihan Lokey’s research, Accel-KKR, Vista Equity Partners and Thoma Bravo have been some of the most active private equity players in the sector, making 15-20 investments each in transportation technology companies since 2019.

“The industry is evolving rapidly, and we expect to see further investment activity as logistics technology companies mature and the solutions they provide become even more capable and critical for businesses navigating the complexities of the global supply chain,” says Ross Devor, partner at Thoma Bravo.

Project44 Case Study

One of the biggest investments in the sector this year was the $420 million funding round into Project44, a supply chain visibility platform, led by Thoma Bravo, TPG and Goldman Sachs Asset Management in January. Six other venture capital investors joined the financing, giving the company a $2.2 billion valuation.

The Chicago-based company tracks more than 1 billion global shipments annually.

“Supply chains are increasingly complex and globally distributed, and data-driven networks like Project44 are critical in helping businesses meet the increasing demands of customers and overcome the logistical challenges of today’s world,” Devor says.

Thoma Bravo has made many other acquisitions in the sector, including Auctane (formerly Stamps.com), a shipping and fulfillment software company; Command Alkon, a construction supplier collaboration platform focused on heavy building materials; and Elemica, a cloud-based digital supply network for process manufacturing industries.

Related content: Pressured By Labor Scarcities, a Broken Supply Chain and High Inflation, Manufacturers Need Help

Project44 has also made a series of its own acquisitions before and after this financing round. Last year, it acquired Convey, Ocean Insights and ClearMetal. In April, the company bought Potsdam, Germany-based based Synfioo, a provider of visibility and arrival estimates for rail freight deliveries in Europe.

Sector advisors often cite Project44 as a notable success story in the sector that has grown quickly and attracted capital from sophisticated investors. Devor is among those who see it as a likely candidate for an eventual public listing: “Given the significant growth that lies ahead for the company, an IPO would be a natural exit.”

Anastasia Donde is Middle Market Growth’s senior editor.