Investors see huge growth potential for automated inventory storage systems and are racing to claim a share of that market sector at any price, according to analysts tracking SoftBank Group Corp.’s acquisition yesterday of a 40% stake of AutoStore.
Japanese technology conglomerate Softbank bought its portion from existing investor Thomas H. Lee Partners L.P. (THL), which still retains a majority share of the Norwegian automated storage and retrieval systems (AS/RS) vendor. But while both shareholders are well-known owners of multiple logistics tech firms, the notable part of Tuesday’s deal was the sky-high $2.8 billion price tag SoftBank paid to THL, according to Rueben Scriven, senior analyst at Interact Analysis.
That price implies that the full value of AutoStore is nearly $8 billion, which would eclipse at least one firm’s estimation of the entire global size of the AS/RS market, which is forecast to reach just $4.6 billion by 2027.
“Assuming a 50% revenue growth rate from 2019 and a 2020 EBITDA margin of 48%, this would result in an EBITDA multiple of 54x when comparing 2020 EBITDA with the $7.7b valuation. This begs the question: Why has AutoStore’s valuation skyrocketed in recent years?” Scriven wrote in a post about the firm’s earnings before interest, taxes, depreciation, and amortization (EBITDA).
Accounting is complex, so direct comparisons are difficult to make, but AutoStore reported revenue of $195 million in 2019 and has now been valued at $7.7 billion. In a similar sector, the conveyor vendor Dorner Manufacturing Corp. is on track to record a comparable $125 million revenue, but was recently sold by its private equity owner for just $485 million. However, when the autonomous mobile robot (AMR) maker 6 River Systems was purchased in 2019 by Shopify for $450 million, it was expected to generate annual revenue of just $30 million.
Scriven listed three main explanations for SoftBank’s high valuation of AutoStore, including a shift toward the micro-fulfillment centers (MFCs) increasingly installed in retail stores and dense urban areas, recent hardware and software upgrades made by AutoStore to its products, and the vast consumer shift towards online retail accelerated by the pandemic.
Analyst Dwight Klappich with Gartner also cited the surprisingly large price tag in the AutoStore deal, but said that estimates of colossal growth rates for AS/RS and robotic inventory management platforms were likely correct.
“Some of the valuations we’re seeing are bigger than the actual market right now, which I find fascinating,” Klappich said. “The amount of revenue that AutoStore generates is a small fraction of what SoftBank paid. But it speaks to the amount of potential growth they see and where they think the market is going, and I would concur.”
Demand for AS/RS and other material handling automation is likely to stay hot for years to come, given the small proportion of warehouses in North America that have yet installed advanced automation systems, he said. At the same time, market pressures such as the cost and the scarcity of labor for warehouse jobs will continue to encourage companies to invest in automation and robotics in order to keep up with soaring volumes of e-commerce orders, said Klappich.