Attractive investment opportunities and leverage to increase value in logistics

The logi­stics sector has been charac­te­ri­zed by above-average growth in the last two deca­des. The globa­liza­tion of produc­tion steps and supply chains caused volu­mes to increase 1.5–2.5 times faster than global econo­mic growth. Another key growth driver was the steadily incre­asing share of e‑commerce, whose struc­tu­ral growth will conti­nue in the coming years, driven by new segments, further inter­na­tio­na­liza­tion of e‑commerce and regio­nal penetration. 

The highly frag­men­ted indus­try has always been charac­te­ri­zed by a high level of M&A acti­vity. While in the past the focus was prima­rily on buil­ding regio­nal or global plat­forms and expan­ding geogra­phi­cal coverage and trade routes, the expan­sion of the service port­fo­lio towards inte­gra­ted end-to-end solu­ti­ons for custo­mers has become another key factor in deal acti­vity. In recent years, howe­ver, substan­tial new prio­ri­ties for M&A acti­vi­ties in the indus­try have been added. Access to new tech­no­lo­gies, auto­ma­tion and digi­ta­liza­tion and to provi­ders with specia­li­zed capa­bi­li­ties and service port­fo­lios as well as the need to make supply chains more sustainable are driving more trans­for­ma­tio­nal deal activity. 

As a cata­lyst for this trans­for­ma­tion in the logi­stics indus­try, private equity acti­vity has also increased — by 19% p.a. in the Euro­pean market between 2017 and 2022. At the same time, the average deal size has also increased over time. While the average enter­prise value for tran­sac­tions by finan­cial inves­tors in the logi­stics sector was EUR 153 million in 2016, it rose to an average of EUR 280 million by 2022. 

The market growth, the high frag­men­ta­tion of the indus­try and the high poten­tial for syner­gies both in opera­ting costs — e.g. through higher utiliza­tion of networks and warehouse loca­ti­ons — as well as the cross-selling poten­tial by offe­ring addi­tio­nal services and end-to-end solu­ti­ons — e.g. by combi­ning air freight/ocean freight with dome­stic trans­ports, warehousing and value-added services — are key aspects for M&A and buy & build strategies.

In addi­tion, the supply chain and logi­stics indus­try is often charac­te­ri­zed by a focus on opera­ti­ons, costs and service, espe­ci­ally among the many smal­ler market parti­ci­pants. — The consis­tent focus on incre­asing value, opti­mi­zing the bottom line and ROI and the stra­te­gic perspec­tive and network of a finan­cial inves­tor offer oppor­tu­ni­ties for private equity to increase perfor­mance. At the same time, many busi­ness models are asset-light and based on multi-year contracts, which provi­des a good basis for acqui­si­tion finan­cing. The need for trans­for­ma­tion and inno­va­tion in the supply chain has also been made abun­dantly clear by the various disrup­ti­ons in global supply chains in recent years. For exam­ple, the acce­le­ra­ted growth of e‑commerce and the freight capa­city and deli­very bott­len­ecks in the wake of the Covid pande­mic. The resul­ting need to restruc­ture and adapt supply chains has also driven M&A acti­vity in the indus­try in order to adapt capa­ci­ties to the new requi­re­ments and custo­mer needs. 

Above all, howe­ver, M&A acti­vity is now being driven by trans­for­ma­tio­nal deve­lo­p­ments — e.g. data analy­tics, which offer finan­cial inves­tors in parti­cu­lar the oppor­tu­nity to drive these chan­ges and inno­va­tions and thus exploit new and inte­res­t­ing invest­ment opportunities.

Dr. Michael Rolle is Mana­ging Direc­tor and CFO at DHL Supply Chain, the global market leader in logi­stics. He is also an inves­tor in the logi­stics sector and an advi­sor to private equity funds for Supply Chain. Previously, he was respon­si­ble for M&A and Corpo­rate Deve­lo­p­ment at DHL Group and before that spent six years at private equity inves­tor Apax Partners. 
He studied busi­ness admi­nis­tra­tion and earned his docto­rate in econo­mics (econo­me­trics) at the Univer­sity of Colo­gne. He obtai­ned a CEMS Master’s degree at ESADE in Barce­lona and HEC in Paris and comple­ted a docto­ral fellow­ship at Harvard University. 

michael.rolle@dhl.com