In this special edition of Supply Chain Matters This Week in Supply Chain Tech, we highlight two rather significant announcements that reinforce the large sums of monies continuing to flow into the logistics and freight tech sector, and now the attraction of bigger and more influential investors.

We highlight the announcement from shipping conglomerate A.P. Moller Maersk of its intent to acquire U.S. based specialty trucking firm Pilot Freight Services, and international logistics and digital services broker Flexport’s announced Series E round that has drawn notable high-profile investors.

As our Supply Chain Matters readers who follow this column are aware, similar to what occurred in 2021, an avalanche of investment funding and M&A actions will continue to be directed to solving specific supply chain logistics and execution, along with planning and decision-making challenges. The year 2022 has already started with a flurry, and the names of investors and types of deals promise more to come over the coming weeks.

Our prior February 5th edition of this column highlighted container shipping line CGA CGM’s acquisition of French based E-Commerce focused last mile delivery services firm Colis Prive Group, among other announcements.

 

A.P. Moeller Maersk to Acquire Pilot Freight Services for Upwards of $1.7 Billion

Today, shipping conglomerate A.P. Moller Maersk announced yet another acquisition, specifically its intent to acquire U.S. based specialty trucking firm Pilot Freight Services, a U.S. based first, middle and last mile trucking carrier specializing in large bulk freight movement across North America. The relatively asset-light trucking services provider specializes in online retail driven B2C and B2B distribution needs.

The announcement was made after the second ranked ocean container carrier by capacity reported a 55 percent increase in total revenues and record level profitability for 2021 amounting to $24 billion.

In prior Supply Chain Matters updates, we have highlighted that Maersk’s M&A actions have been targeted toward logistics services related to the world’s three largest E-Commerce regions, Europe, North America and Asia. The goal is to provide the carrier’s existing and future customers the ability to sell and fulfill customer needs across multiple channels in a seamless manner.  Implied is a further ability for shipping and beneficial customers to have total visibility of material and inventory movements across ocean, inter-modal and logistics fulfillment segments. However, total visibility is a misnomer to the ability to lock large customers into integrated shipping and logistics services contractual services.

According to today’s announcement from Maersk, this latest move further adds to prior recent acquisitions. They include the August 2021 acquisitions of Netherlands based B2C Europe Holding B.V. (B2C Europe), a logistics and online customer fulfillment provider serving mostly Western European based customers, and E-Commerce warehousing and parcel distribution firm Visible SCM. In December, Maersk announced $3.6 billion deal to acquire Asian warehouse specialist LF Logistics, headlined as the second-biggest takeover in the shipping firm’s history. A further acquisition involved B2B warehousing and distribution services provider Performance Team (PT).

Established in 1970, Pennsylvania based Pilot Freight Services is described as operating a North American facilities-based transportation network of 87 stations and hubs through which freight is transported and distributed to end customers. The company uses mainly 3rd party providers of trucking and has access to controlled capacity which facilitates a high quality first, middle and last mile service offering. The scope encompasses full truckload (FTL) and less-than-truckload (LTL) for both B2C and B2B distribution including heavy and bulky shipments with white glove service with a focus on expedited and time definite services.

Pilot Freight Services was principally owned by private equity firms ATL Partners and British Columbia Investment Management (BCI) which acquired this trucking services provider in 2016. Pilot has since grown to be reportedly ranked as the second-largest provider of B2C home delivery in the United States. The specialty trucking services firm had acquired American Linehaul Corporation in July of 2021.

Today’s announcement indicates that the acquisition price equates to an enterprise value of $1.8 billion, post IFRS-16 lease liabilities, reflecting a pre-synergy EV/EBITDA multiple of 13.8x based on an estimated post IFRS-16 EBITDA of approximately $130 million for full-year 2021.

The above would imply that Maersk was inclined to pay a handsome premium for Pilot.

The acquisition is now subject to regulatory review and approval which is expected to be obtained by Q2 2022. Both companies will reportedly operate as independent businesses and run their operations as usual until that time.

An added note from our Supply Chain Matters lens is whether such increased M&A actions occurring from multiple globally based shipping lines directed at horizontal lockup of services will eventually trigger added governmental regulatory concerns related to undue market influence. Our sense is that with each of these types of announcements, such actions may be come sooner than later.

 

Flexport Draws $935 Million in Series E Investment

Digital based international shipping and logistics brokerage services provider Flexport announced this week that the tech provider has raised $935 million in Series E funding led by prominent Silicon Valley venture capital firm Andreessen Horowitz, along with MSD Partners. Previous investors DST Global, Founders Fund, and SoftBank Group’s Vision Fund further invested in this latest round. In February of 2019, this column highlighted Flexport’s one billion Series D funding round, led by Vision Fund and three other investors. At the time, the digital freight services provider had exceeded $500 million in annual revenues.

What specifically captured this column’s interest in the latest round of funding was the addition of online commerce platform provider Shopify, which has been reported to exploring on expanding into broader control of the platform’s online fulfillment network.

The logistics services provider’s new valuation reportedly stands at $8 billion, an indication that private equity players are willing to invest in levels over two times 2021 revenue levels.

According to reporting by The Wall Street Journal, Bob Swan, former CEO of Intel and Operating Partner at Andreessen Horowitz will serve on the Flexport board with representatives from Shopify and Michael Dell’s MSD Partners joining the board as advisors.

In an Andreessen Horowitz blog posting authored by David George and Bob Swan, the authors cite the specific value-added for Flexport’s technology in international logistics:

Traditional forwarders offer an estimated delivery window of multiple weeks but can be wildly inaccurate and is updated in nowhere close to real-time. For someone like an e-commerce merchant, this lack of visibility is unacceptable. Their customers demand accurate shipping information and real-time updates on their order progress. Flexport solves this problem by providing real-time delivery estimates that are down to a specific day. In fact, Flexport is often able to provide estimates with higher accuracy than the transoceanic carrier’s own systems! On top of this, they seamlessly integrate into the merchant’s site to keep the customer apprised of their order progress as soon as something changes.”

According to a company blog posting outlining the funding announcement, proceeds from this latest round will be directed at accelerated development of Flexport’s technology platform for global logistics, investing in new start-ups to make supply chains more efficient, transparent and inclusive, and continued expansion into new geographies.

Further noted was that in 2021, Flexport

  • More than doubled total revenue from 2020 to 2021, to $3.2B.
  • Growth to upwards of 2,700 employees across 23 offices worldwide.
  • Occurrence of the first EBIT positive year.
  • Supported movement of nearly $19 billion in merchandise across 112 countries.

 

An added note to this added equity infusion into Flexport reflects further evidence that deep pocketed, and now later-stage private equity investors continue in their efforts to now disrupt transportation, third party logistics services and supply chain technology execution markets after successful investments in online commerce providers. Valuations of these essential start-ups or growth focused providers are skyrocketing, as are the expectations for accelerated market growth.

Contrast this with global carriers such as Maersk and CMA CGM now investing rather significant profit gains into acquisitions of land-based intermodal logistics and surface transportation, aligned with the continued growth of online commerce.

One is a strategy focused on integration of physical services, information flow and larger customer contractual lock-up. The other is a strategy among private investors of deploying advanced technology to attract larger numbers of shippers and logistics services providers implying an eventual realignment of supply chain customer fulfillment services markets. This is akin to an Uber or Lyft scenario on steroids.

Which model will prevail, and which model will garner added attention from businesses, existing market dominates, industry lobbying groups and eventually, governmental regulatory interests is what businesses and supply chain management teams should focus on.

 

Bob Ferrari

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