August 5 2022 | 7 Min Read

How logistics management can improve profitability across a PE's entire portfolio of companies

Posted By
Wendy Mackenzie
How logistics management can improve profitability across a PE's entire portfolio of companies

Private equity firms look for an annual profit of between 20% and 25%. They estimate that one in every five companies they acquire will be a failure, so those who make profits should compensate the losses of those who fail, says One to One Corporate Finance.

The supply chain activities of most companies consume up to a fifth of their sales dollar. Today’s supply chain challenges impact businesses across, we venture to say, nearly all industries. But with every trial comes a huge opportunity for stabilization, improvement, and profit.

We’ll show you how enhancing a company’s supply chain can be the make-or-break factor in portfolio management today. Then we’ll show you why working with a seasoned 3PL partner is the way to do it.

The supply chain opportunity

The supply chain crisis has become an opportunity for private equity firms. Over the past months, we have seen private equity firms making notable investments in the global logistics segment, including real estate, storage space, and warehouse-related services and technology.

Last year, private equity invested $50.6 billion in logistics. PE deals in the US supply chain sector accounted for $20 billion in total deal value, according to PitchBook, a company that collects information on private-fund investments. That’s three times more than the amount invested in 2020. It’s over 34% higher than 2019, which was a record year for private-equity investment in supply chain businesses. This is a startling trend when you consider that global investments in a sector as bullish as AI only doubled in the same time period.

Though challenges such as market turbulence, fears of recession, and dampened consumer activity will impact business outlooks in those companies related to the flow of goods and services, PitchBook private equity analyst Jinny Choi believes the long-term growth aspects of e-commerce, digitalization and globalization have created a stable outlook for opportunities in the supply chain tech sector this year.

However, that upbeat outlook for supply chain investment comes with an important caveat.

Nick Antoine, a co-founder and managing partner at Red Arts Capital, a supply chain tech-focused PE firm, told PitchBook that he believes the complexities of supply chain businesses make it imperative for private investors to understand the intricate inner workings of the supply chain ecosystem. Only those with deep knowledge of the sector are well-positioned to address the many economic challenges supply chains face.

You don't have to specialize in the supply chain sector to reap the benefits

Aerial View of Young Business Friends Discussing the Project at the Worktable.-1Supply-chain and logistics businesses remain a relatively niche investment play, typically pursued by buyout firms that specialize in the supply chain sector. PE firms outside of this niche may still, however, find rich opportunities investing in companies that rely on a smooth-running supply chain. By seeking out companies in stable and growing industries and helping them manage the logistics crisis to improve their profit and business operations, private equity firms can strengthen their portfolio and turn a solid profit.

“There is little question that the disruptions in the supply chain have created new opportunities for investors,” Ryan Preston Dahl, a partner in the restructuring group at Ropes & Gray LLP, told the Wall Street Journal. “A large universe of [sponsors] is well-capitalized to find opportunities created by supply chain dislocations.”

Why supply chain technology is a sound partnership

Behind private equity firms are a band of investors who show a growing preference for tech-enabled companies that help them future-proof their portfolios.

At the heart of IL2000’s solution is a proprietary industry-transforming transportation management system (TMS) tailored for each client's specific needs. Like private equity firms, we believe in future-proofing and that only happens when we are fast in the now – building intelligent tracking and management systems with the tools needed to make swift, cost-efficient, and inventive shipping decisions. Get the process right today, and tomorrow becomes business as usual.

We all know transportation management isn’t quite that simple, especially today. So while bespoke tech forms the foundation of a logistic solution, services are what enable a company to roll with the punches. And that takes a company with decades of experience and a team of experts by your side.

How to capitalize on today's supply chain challenges

The potential upside of managing supply chains efficiently and effectively can be huge, but that reward is not just there for the taking.

Private equity firms first face several obstacles when looking for ways to use current supply chain dislocations to their advantage. These include:

  • Supply chain volatility with repercussions companies can neither predict nor control
  • Lack of data and insight into supply chain management
  • High labor resignations/turnover and lack of expertise
  • Decentralized supply chain operations throughout newly acquired companies

Here’s where partnering with a reliable 3PL with decades of experience and an expert team available around the clock makes the difference. IL2000 will shed light on where and how to make optimizations to clear these hurdles and reap these benefits:

Efficiency across portfolios

What a 3PL can do for one company, it can do for multiple companies across the portfolio. Look for a partner like IL2000 who has expertise across a wide range of industries from automotive, building materials, building products & construction and chemicals to medical equipment manufacturing, packaging, and plastics, so you’re not boxed into a narrow sector.

The market is volatile and now is the time to identify ways to turn a profit with logistics and supply chain optimizations. Only select experts can manage this successfully.

Get in touch with IL2000 to see how we can help raise a company’s annual profit by decreasing logistics costs, minimizing transportation risks and assuring reliability.

Topics: Logistics Management, Supply Chain Management, 3PL, Private Equity

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