…and more efficiently..
At least more than ever, apparently: the pandemic’s effect on a tumbling economy has certainly helped more and more people to think outside their box and cleverly expand their activities in synergic fields. I think it’s right, it’s good and it’s an incredible capacity of human beings of reacting to tough times. Mergers and acquisitions have been a way to respond to such needs. Let’s see this overview of its (possible) applications to the shipping market.
How To Spend It – Recent Trends In Shipping M&A
in International Shipping News 08/09/2020
The shipping industry is not known for being a particularly active sector in Mergers and Acquisitions (M&A). However, the biggest players in the sector are more acquisitive than you might expect.
The COVID-19 pandemic has had a major impact on the shipping industry. It has disrupted global trade patterns, fuel prices and the life of seafarers. As a result of the economic slowdown, many corporate transactions have been postponed, re-entered virtual renegotiations or been aborted.
Many market participants focus on organic growth and vessel sale and purchase (S&P), rather than corporate acquisitions of trading businesses. Corporate transactions do not receive as much attention when compared to S&P. Our research focused on corporate acquisitions and excluded vessel S&P transactions.
Below and overleaf, we have reviewed some key, recent corporate M&A of major shipping players. We have concentrated our analysis on the top ten largest operators in the major shipping segments (Tanker, Container, Dry Bulk and Independent Ship Management) and covered the period from January 2018 to March 2020.
Depending on the company and sector there appears to be clear appetite for M&A activity, despite recent pressures on availability of finance.
The leading container lines have been relatively active in recent years. They are increasingly investing in onshore activities and technological solutions in order to expand their presence along the supply chain and capture a greater proportion of the onshore value chain. There is a clear desire to invest in port-side logistics and terminal infrastructure at key
geographical hubs. Maersk and COSCO‘s recent activity are good examples of this.
Dry bulk operators are focused on efficiencies and economies of scale and engage in less onshore activity than the major container lines. There has been less M&A activity as dry bulk carriers have focused on core shipping activities rather than integrating into supply chains. The benefits of onshore and port-side logistic operations appear less attractive to these operators, with a seeming unwillingness to diversify from core operations. Star Bulk’s recent M&A activity is a good example of this strategic approach.
Tanker operators are the least active of the key shipping segments. Again, there appears to be a stronger focus on core shipping activities and vessel S&P. Major national players such as Bahri and NITC are unlikely to have the remit for aggressive M&A, and given the less diversified nature of the cargo, it is more challenging for tanker businesses to move into onshore operations.
INDEPENDENT SHIP MANAGERS
Private equity has a reasonable presence in this sector, which will drive future M&A
activity given the availability of dry-powder funding. V.Group and OSM Maritime activity indicate there is likely to be future
consolidation in the ship management sector.
In summary, we identified three key drivers across the major shipping players when participating in corporate transactions:
1. Economies of scale – these are highly beneficial in theory but harder to achieve in practice. Consideration of contract margins, vessel utilisation and sector demand and supply should be carefully assessed in advance of acquiring for scale.
2. Seeking competitive advantages and operating efficiencies through technological advances and market intelligence (via access to higher quality data). Integration of systems and operating efficiencies through synergies can be costly and time consuming in the short term. It is also important to consider the ownership of intellectual property in advance of any acquisition.
3. Capturing a larger proportion of the supply chain with integration into onshore activities,
Summary of key findings
whether this is port-side infrastructure or logistics businesses. Transformation into a sector outside of core business operations is not without risk. Additional expertise and management reporting will need to be introduced post acquisition. Reliance on experienced advisors with knowledge of the sector and key drivers of successful financial performance will be essential when undertaking any acquisition to achieve this objective.