Happy Sunday Folks!
If we speak on a regular basis, you probably already know this but I think the time has come for me to subject y’all to my ongoing vacuum woes. So my Dyson ran out of batteries 4 months ago. First of all, how is that even possible?! I thought a $500 vacuum cleaner came with an unlimited battery! But secondly and more importantly, there are no Dyson batteries available ANYWHERE. The Dyson store doesn’t have it and the website seems to be permanently “out of stock”. At least that’s been the case for the last four months. Apparently it started with some labour shortages at their factories in Malaysia, and was then exacerbated by the logistical issues that seem to be plaguing pretty much everything at this point.
I can’t do much about the situation except wait. But while I wait, it got me thinking about how the new money finally has a chance at reviving this old industry. That’s right folks. This is how I respond to adversity. I try to look at the big picture. The big picture here is that the Transporation and Logistics (TLOG) sector has suffered from inefficiencies that are so endemic and a market so fragmented that it’s been easier to avoid it vs fixing it because no one knows where to even begin. Further, low profitability of the sector has meant saying no to new innovations, simply because no one’s got the money. It has only been in the last few years that the private markets re-evaluated the risk reward of investing in TLOG, especially as e-commerce started to gain a dominant foothold.
Actually a lot of credit goes to China as they have been at the forefront of TLOG innovation — Six out of the ten best funded TLOG startups are from China, including the Manbang Group (whose enormous $1.9B funding round was led by SoftBank’s Vision Fund). This was mostly in response to finding efficient and convenient ways of tackling the high e-commerce demand, which had long moved past tier-one cities. In addition to favourable demand growth, China also benefitted from a government that is focused on boosting the integration of logistics and IT as part of its “Internet Plus” initiative.
I do want to mention this this thesis had its genesis pre-Covid. E-commerce had already begun its global penetration and was birthing novel TLOG startups, especially in the last mile delivery and freight spaces. In fact, TLOG startups funding substantially outpaced overall venture funding with almost $28B invested in them between 2014-2019.
What Covid did was make us aware of the lack of innovation in this sector and therefore, the opportunity that exists today as a result of that. It has created this perfect transfer opportunity from the Private sector to the Public Sector because everyone is on the same page. It’s important that everyone shares the same narrative because if they don’t then the assets get mis-priced.
Case in point is the 2017 IPO of BEST Inc., which is a China based logistics provider and was backed by Alibaba. The company was a unicorn when it IPO’d at $12 but currently sits at a market valuation of <$500M. I don’t know the specifics on why it has underperformed this entire time but my macro guess is that in 2017, public markets weren’t really betting on the TLOG disruption as we are in 2021. The timing wasn't right for an on-time delivery business.
But in 2021 — the timing seems perfect. We shop for things online, and same day delivery is soon becoming a pre-requisite. VC’s are in the money on their TLOG wager. The sector is finally opening itself up to a much needed makeover. And not to forget, Covid has made us aware of how imperative it is to have efficient transportation and logistical systems.
In 2021, we also have SPACs that sit at the intersection of crossover investing and allow for a seamless transfer of a unicorn from private to public markets. So as a SPAC investor, I wanted to find opportunities that fit within my TLOG thesis above. And to my surprise, out of the 652 active SPACs, there are only 4 SPACs with Supply Chain and Logistics focus.
LITT - Logistics Innovation Technologies Corp.
KRNL - Kernel Group Holdings, Inc.
JCIC - Jack Creek Investment Corp.
LGST - Semper Paratus Acquisition Corp.
This is a good thing that there aren’t too many TLOG SPACs out there, and also a good thing that the 4 that are, probably know what they’re talking about. If you look at their bios below, you see that each of the sponsors has a direct experience in the sector.
The reason I really got interested in digging deeper into this was when I was writing about the $LGST IPO last week, and I noticed that they reduced their duration from 24 months to 15 months. Oooh I like that level of confidence! As I also noted in the letter, a company going public via a SPAC has an average EV of ~$1.3B. And if you’re a private company that has reached a unicorn status, then you also have a higher affinity to go public via a SPAC than raise another private round. So I wanted to check how many TLOG unicorns exist out there. Good news - there’s more than 4. There is a total of 16 Unicorns in the Logistics Space right now, and 13 out of those 16 have reached a unicorn status in 2021.
Specific thesis, experienced sponsors, low duration, quality targets…c’mon it warrants attention. The 4 SPACs are also all offering 1/2 warrant each, except for $LITT, and are still trading close to their All Time Lows, making for a great entry point.
$LITTW - $0.79
$KRNL - $0.59
$JCICW - $0.67
$LGST - Units haven’t split yet
Personally, I am more interested in $LITT and $LGST as they have superior Sponsor teams, and their board also has great private equity and VC candidates from the TLOG sector, which should be accretive to their deal flow and pricing.
Overall, I am very excited to see this macro thesis play out. On the micro side, I’ll let you guys know if/when my Dyson batteries ever arrive.
Have a fantastic week ahead!
PS. This is not trading advice. Please do your own DD!
PPS. I’m traveling the next few weeks, so the posts maybe a bit ad hoc. I promise I’ll try!!