Supply Chain Startup: Roll ‘em up

It's hard to pinpoint when the supply chain roll up got started. It could be way back in 2006 when JDA Software began an acquisition tear, acquiring Manugistics, followed over the years by i2 Technologies and RedPrairie. It culminated with the 2018 acquisition of Blue Yonder and recent name change to Blue Yonder. Private Equity and VC money was involved through the Blackstone Group.

It could be Honeywell's acquisition of data capture companies like Intermec and Vocollect followed by the automation firm Intelligrated. It could be Toyota's acquisition of Vanderlande and Bastian, or Kion's acquisition of Egemin and Dematic – two lift truck powerhouses jumping into materials handling automation with both feet. Or, more recently, the portfolio Thomas H. Lee Partners is putting together with its acquisitions of MHS, AutoStore and Fortna or that the Korber Group is creating with its acquisitions of DMLogic and HighJump in North America to compliment a portfolio of software, data collection and automation solutions in Europe. My guess is that none of those companies is done. After all, with speed to market so important, you can buy capabilities much faster than you can make them internally.

While none of these companies are technically startups, the usual subject of this blog, they do represent the interest in strategic investments in technology in the materials handling and broader supply chain space. And, those investments are being made by established industry players as well as the investment community – the other topic of this blog. So, what's happening?

To answer that question, I reached out to John Sidell, the managing principal of New Course, a management consulting firm focused on both growth and exit strategies for companies in the supply chain technology space. Founding and selling a startup is something Sidell is familiar with: Way back in 1999, he co-founded ESYNC “on the back of a napkin,” which he and his partner sold to TranSystems in 2007.

According to Sidell, there wasn't much interest in supply chain investments for most of his career. That was especially true for deals valued at less than $25 million. Deals were reserved for more mature companies. Many of those were insider baseball deals, like Dematic's acquisition of H.K. Systems or Daifuku's acquisition of Jervis B. Webb. With that kind of bar, there was little incentive for roboticists and data scientists to jump into our space. All of a sudden, interest has exploded, Siddell says. “Now, firms are telling us that if a company has revenue below $10 million but it's growing, we'll talk to them.”

The interest has increased as the recognition of the contribution of supply chain and logistics to an organization's success has increased. “It's gone from the VP level to the EVP level to the chief supply chain officer and now to the boardroom,” Sidell says. “That rise has given the investment community a pause.” Just think of what's happened in the current COVID-19 pandemic: Friends and acquaintances who previously couldn't spell supply chain are talking about it on Zoom cocktail hours with their friends.

As to the roll up strategy, Sidell thinks the emergence of solution portfolios is creating one-stop shopping for software, automation and consulting. “If I'm the president of a $5 billion company with supply chain issues, who can I turn to?” he asks. “In the past, one company that had it all rolled up didn't exist. Now, we're seeing a number of companies making real progress to that end.”

The roll ‘em up approach flies in the face of the best-of-breed strategy that was deployed by a lot of companies when they were putting their supply chain solutions together. But Sidell sees an advantage, especially for our industry's largest customers. “The benefit is one throat to choke,” he says. “And, when the solution is installed, there's less overhead in running a new distribution center. These companies are going to have economies of scale that can be leveraged.”

As someone who has covered this space for years, I'm expecting to see more mergers, acquisitions and partnerships in our space, and more significant investments from the private equity community as what we do in warehouses, distribution centers and transportation becomes increasingly mission critical. And, while I expect to see more combinations of established companies like what we've seen at Honeywell, Toyota, Kion, and Korber, I also expect a shakeup in the startup community. Once those big guys put their portfolios together, they'll look to the startups for their secret sauces and next competitive edge.

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