As supply chain companies become ever more integral to the economy, private equity investors are putting more and more funding into them, says Jay Koh, managing director and co-founder of The Lightsmith Group.
Private investors are interested in putting money into highly productive parts of the economy, and it goes without saying that the supply chain is critical to all products, services and trade flows, Koh says.
“Whether you're a multinational company or a consumer, having the supply chain operate in efficient, reliable manner despite whatever complexity is out there is really important,” he says. “So the value created by the companies that do that is exactly what private equity is interested in.”
Investment in such companies is hardly new, but there’s a more serious interest in pinpointing the winners in supply chain and logistics companies today as the industry grows more complex.
“If private equity can work long-term with the best management teams that can really generate that value, that's what's attractive, especially at this moment of increasing complexity,” Koh says.
Growth equity investors must be prepared to work with a company and its board and help it expand internationally if it’s to realize the next phase of its growth, he says. That often means holding companies longer these days, but the hope is that major value is found in the long term.
Climate change, tariffs and labor disruptions are among the factors increasing complexity in supply chain and logistics companies in recent years. “The first thing to do is to really understand how that risk and complexity is affecting the movement of goods and services in the supply chain,” says Koh. “More importantly, begin to understand that if you can manage your supply chain in a reliable, resilient way and your competitor can't, you will have a long-term competitive advantage.”