Artificial Intelligence to Drive M&A Activity in Supply Chain

M&A activity started out slow in 2023, but several industry trends may spark an uptick to finish out the year. Inflation is decelerating, and interest rates appear to be leveling off, signaling the stalling of private equity investments following the pandemic may soon come to an end. At the same time, interest in artificial intelligence (AI), decarbonization efforts, and a worsening labor shortage are creating opportunities for a more active M&A environment.

“In the supply chain space, from my perspective, things are warming up,” says management consultant Foster Finley. “There is a pretty unique dynamic we’re looking at. The dynamics are, I’d say, multifaceted, some of which are recent and a little bit like a spike, some that have been like a long slog up a long hill.”

AI a leading factor for M&A growth

One of those most recent dynamics at play is the increasing adoption of generative AI. The technology has become one of the largest trends in the M&A market for 2023. Companies across industries are assessing the best way to harness AI’s potential to solve their operational challenges and grow their business.

“There’s a more rapid emergence of artificial intelligence in a lot of the actual work that historically has been kind of done on the back of a napkin by somebody at a brokerage or 3PL,” says Finley. “More companies that previously were just thinking about, ‘Do they have a loading spot for dock door number seven’ … is really being pretty substantially changed with regards to the sophistication and all options that wouldn't necessarily have occurred to a lot of logisticians.”

Earlier this month, Logility, a leading provider of collaborative supply chain optimization and advanced retail planning solutions, acquired Garvis, a SaaS services provider that combines large language models (ChatGPT) with AI-native demand forecasting.

While Logility already has AI capabilities across all components of its supply chain planning platform, they hope the technology acquired will level up its forecasting and demand planning capabilities.

Climate change and labor challenges provide additional opportunities

Companies are also increasingly looking for new strategies to reduce their impact on the climate, as well as address their labor needs. Technology will likely play a significant role in solving both challenges, further setting the stage for increased M&A activity.

“There was a precipitous downtick with COVID-19 that we have not recovered. And if you look at the number of qualified drivers versus the number of companies that are hiring, that is as bad as it’s been in probably at least 15 years,” says Finley.

Private equity investments poised for a big 2024

Also of note is increased movement in private equity investments. Private equity slowed during COVID-19, but Finley says people are anxious to get back in the market, which he believes will result in an increase in mergers and acquisitions.

“It would be foolish to talk about mergers and acquisitions in the North American market, without really thinking about the private equity investments in these businesses,” says Finley.

Private equity firms often hold onto investments for three to five years. With an uptick in investments in 2020 and 2021, that three-to-five-year time frame is approaching, and these firms will be making moves in late 2023 into 2024.

“There is so much pent-up need and demand in and around these things that I don't think it's going to get to the end of 2023 and taper off. It’s going to be kind of the launching pad for a big 2024,” says Finley.