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Nicholas Antoine, co-chief executive officer of Red Arts Capital, explains why logistics and supply chain companies are an especially attractive target for investment by private equity.
Private equity has a long history of investing in logistics and supply chain companies, but there’s been “a lot of accelerated interest” in the sector in the last five years, Antoine says, despite tensions caused by COVID-19 and automation.
Such businesses are “an essential part of the economy,” Antoine says. “They’re a core part of what we rely on every day.”
Red Arts Capital invests in two distinct areas of supply chain and logistics, one focusing on packaging and the other on port-related services for the middle market. Antoine says the firm favors companies that tend to operate in specialty or niche areas that differentiate them in the marketplace.
The firm’s portfolio includes both capital-intensive and asset-light businesses, although private equity historically likes the latter for its free cash flow, Antoine says. In all cases, Red Arts zeroes in on three elements: the stability of the business in question, its profitability, and its growth prospects.
The logistics and supply chain space is particularly vulnerable to economic volatility and the kind of geopolitical strife that’s occurring worldwide, he acknowledges, adding that “we like businesses that are insulated from some of that.”
Still, the firm’s greater focus in on the long term. “At the end of the day,” Antoine says, “you want to invest in great businesses, people and culture, and create as much value as you can for shareholders.”
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