For all its unpredictable ups and downs, the supply chain technology sector remains an attractive target for investors.
Prominent among investment firms that are bullish on supply chain and logistics tech providers is FTV Capital, a US based growth equity firm that has raised some $6.2 billion with a focus on players in software, financial services and transaction processing.
FTV was already a presence in the sector before COVID-19, but it was the pandemic that “shone a light on the market” while revealing the fragility of global supply chains, according to FTV Capital Vice-president Arun Singh.
With many opportunities for technology adoption, the industry attracted significant amounts of capital over the past few years, says FTV partner Alex Mason. He expects to see much of that investment becoming absorbed in 2024, as executives slow the pace of tech adoption and take a longer view of risk and resilience in their supply chains.
FTV’s sweet spot is young companies with “strong growth characteristics,” Singh says. That means avoiding both early-stage venture capital opportunities and more mature companies angling for a highly leveraged buyout. Singh says the firm aims to form close relationships with management teams and employees, rather than look for a quick payback.
The goal is to “build great businesses, and the exit will come,” he says. Going public is an option, but more often the long-term opportunity comes from a larger company that wants to acquire a capability that it doesn’t currently possess.
This year, the industry is experiencing “something of a new normal in supply chain investment,” Singh says. That follows a funding boom — one that attracted a certain amount of “tourist capital” — that in retrospect looks like an aberration. Now, it’s a question of shepherding companies through a quieter period of both strong opportunity and uncertainties about the direction of the economy. “Long-term investment is here to stay,” according to Singh.
In a time of demand and supply imbalances and inflation driving up the cost of carrying inventory, FTV looks for businesses that provide “durable and repetitive ROI,” Mason says. From a regional perspective, he notes particular interest emerging in Europe, the Middle East and Africa (EMEA), with a strong focus on honing supply chain efficiency over the coming decade.
Singh sees a growing awareness of the need to manage supply chain risk through multiple tiers of suppliers. Manufacturers will be reevaluating their sourcing strategies, as they diversify the supplier base and shift some production closer to North American markets. Regardless of the decisions they actually make, he says, “the criticality of this process is not going to lessen over time.”
Mason says software purchasers are moving beyond the mere acquisition of supply chain visibility platforms to a focus on “the action and insights that visibility creates.” In other words, the software has to deliver on its promise of end-to-end control and insight.
While we agree with this, operational implementation and use of the technology by experienced operators is equally important to supply chain success.