SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among logistics enterprises. We look at why they are compelling and why each could be a fit for a blank-check merger.
With the market winds blowing straight into the face of most sectors, there are more and more criteria that need to be met in order for the market to warmly welcome any newly listed company. Positive cashflow in the present tense is the central among these, but also the sectors that are expected to have increased demand over the medium term has shifted considerably since the beginning of the 2020 SPAC boom.
Today, dreams of a green future and the urgent demand for medical testing and remote commerce products are giving way to a world that is potentially facing both a recession and persistent supply chain challenges due to the variety of causes.
All of this change makes the logistics sector far more attractive given that many of these businesses have had steady, if sometimes low-margin, profits for years and are now being looked to as the problem-solvers for the supply chain snarls that have impacted virtually every industry.
In 2020, while companies were losing billions due to COVID-19, a GEP study found that supply chain issues alone were responsible for as much as $4 trillion in collective losses among US and European firms. The problems are far from resolved since then, and so companies have plenty of motivation to spend on fixing whatever portion of their operations they can.
SEKO Logistics was founded as a fairly narrowly-focused freight-forwarder in 1976. But, growing out of its initial Chicago office, it has expanded into a variety of supply chain management channels from the warehousing and shipping levels to last-mile ecommerce fulfillment.
Many of these competencies it has bolted on, acquiring one company per year since 2018. That year, it bought a majority stake in Australia-based Omni-Channel Logistics, adding infrastructure to its operations in China and Southeast Asia as well as global ecommerce customers.
It followed this up by buying out peer freight forwarder GoodShip International in 2019, adding a valuable book of business as well as enhanced capabilities in customs brokering and compliance consulting. SEKO’s 2020 acquisition of Air-City brought similar benefits including an expanded presence at New York transit points – particularly in air freight via JFK International Airport.
Most recently but not least, SEKO’s 2021 integration of Bansard International has given it a France-based subsidiary that turned €210 million ($225.5 million) in sales the previous year. This adds to a revenue base that it last reported as $750 million in 2018. With access to its shipping infrastructure, SEKO’s ecommerce fulfillment reach now extends door-to-door to most of North America, Western Europe and East Asia/Oceania. In much of this area, it can reach all the way into homes as it has gradually expanded its white glove offerings for placing bulky items in their place and assembling them.
These last two M&A moves were funded following an investment by private equity firm Ridgemont Equity Partners, which took a majority position from SEKO’s previous PE-backer Greenbriar, which continues to maintain a minority stake.
So, while the company’s trajectory seems to be steep and climbing, a SPAC deal could give it even more juice for M&A and also provide some flexibility for its equityholders, most of which will want an exit ramp eventually.
Another company in the space that has some recently arrived private equity capital is Austin, Texas-based Arrive Logistics with $300 million raised in April 2021 by ATL Partners along with Temasek, British Columbia Investment Management and hedge fund Baupost Group.
Since its 2014 founding, it has grown its base to about 1,300 employees managing about 70,000 unique carriers and 6,000 shippers moving 3,000 loads per day across its technology platform. Through its EDGE marketplace and enterprise software, it has been prized in achieving speed in connecting shippers to available capacity – even partial loads on trucks and containers.
To maintain this velocity, it allocated $20 million for further technology investment in the platform in 2021 and $100 million through 2024. The company also made its first acquisition this year by acquiring Forager in February, a peer freight platform focused on cross-border services and insights around the US’ borders with Mexico and Canada.
With these tools folded in, it plans to specifically service companies whose operations and logistics straddle the border or are looking to diversify with footholds on one side or the other to take advantage of labor costs, trade or other considerations.
Mercury Ecommerce Acquisition Corp (NASDAQ:MEAC) could help it maintain stride while giving it some other tools for the future. It raised $180 million in July 2021 to seek out targets that help facilitate the growing demands of companies transitioning to ecommerce-first and it has until January 2023 to complete a transaction.
Arrive, like many other logistics companies, have tried to leverage the mounds of data they collect from their platform into analytical tools for clients to also better understand the supply/demand dynamics and where the traffic jams are occurring.
Hickory, North Carolina-based Transportation Insight has made the data side of the business its priority since its founding in 2000. It uses inputs for 14,000 shippers to provide a variety of visibility tools. The depth of its offerings grew it to $2.3 billion in gross revenue in 2018, which was itself a 97% increase over the year before.
At the time, this made it in the largest company in the Inc. 5000 from either Carolinas and the second largest logistics company overall by revenue. While it hasn’t tipped its hand on financials since then, it claims it has maintained 97% retention among clients through the pandemic.
Among its own prognoses moving forward, it expects that the supply chain push-and-pull over the past few quarters to result in a lot of over-inventoried retailers and a lot of logistics capacity in the system available for companies to optimize.
Target (NYSE:TGT) stock was hit this week as it announced it was in exactly this predicament and was cutting orders and prices as it had stacked up more inventory that needed. In this environment, shippers have the opportunity to take advantage of some slack in supply if they have the tools to find it. And, like Arrive, Transportation Insight helps companies transition product flows and supply from China to Mexico or Canada to dodge snarls.
Transportation Insight also already has SPAC connections with its Board member Alan Gershenhorn leading Logistics Innovation Technologies (NASDAQ:LITT) as chairman and CEO. It raised about $341 million in its June 2021 IPO and has until June 2023 to do a deal. But, Semper Paratus (NASDAQ:LGST), which is led by former Spirit Airlines (NYSE:SAVE) CEO and current JetBlue (NASDAQ:JBLU) Board member Ben Baldanza, is another potential fit with about $345 million in trust and eight months on its clock.
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