The shipping industry usually sails along quietly in the world of mergers and acquisitions is making some waves as of late. The shipping industry—not a very active participant in MA—is acting more acquisitive in recent months.
Pandemic Effects on Shipping Industry
The COVID-19 pandemic has had a significant effect on the shipping industry, analysts say. The coronavirus has disrupted global trade patterns, fuel prices, and those who make their living in and around ships.
Because of the economic slowdown, many corporate deals have been postponed, moved to virtual discussions, or scrapped altogether.
Those participating in shipping M&A are concentrating their efforts on organic growth and vessel sale and purchase (S&P), instead of corporate acquisitions of trading shipping industry businesses. In shipping, corporate transactions don’t make as many headlines as compared to S&P.
Recent Shipping M&A
The Hellenic Shipping News took a look at some of the recent big corporate M&A deals in the shipping industry. Their research looked solely at corporate acquisitions and excluded vessel S&P transactions. The publication focused its research on the top 10 biggest operators in the major shipping segments, which include tanker, container, dry bulk, and independent ship management. They looked at the time period from January 2018 to March 2020.
Based the company and sector, the findings showed there appears to be clear demand for M&A activity in the shipping industry, even with the recent issues concerning finance availability:
The leading container lines, such as APM-Maersk, MSC (Mediterranean Shipping Company), and COSCO (China Ocean Shipping Company), have been somewhat active in the past few years. These large container companies are investing more in onshore activities and technological solutions with a goal of expanding their footprint along the supply chain, as well as to secure a bigger piece of the onshore value chain pie. There is a clear desire to invest in port-side logistics and terminal infrastructure at key geographical hubs for the shipping industry. For example, in April, Maersk announced that it had completed the acquisition of Performance Team, a US-based warehousing and distribution company. Maersk said that the buy was to further strengthen its capabilities as an integrated container logistics company that would offer end-to-end supply chain solutions to its clients. Also in April, COSCO acquired Orient Overseas Container Line (OOCL), based in Shanghai.
Dry bulk operators work on efficiencies and economies of scale. These companies engage in less onshore activity than the major container lines. There has been less M&A activity as dry bulk carriers have devoted their energies and resources to core shipping activities instead of integrating into supply chains. The benefits of onshore and port-side logistic operations look less attractive to these operators, as they don’t seem willing to diversify from core operations. For example, Star Bulk entered into an en bloc definitive agreement with entities controlled by Delphin Shipping, LLC, which is affiliated with Kelso & Company to acquire 11 operating dry bulk vessels in May 2019.
Tankers in the Shipping Industry
Tanker operators are the least active of the key shipping segments, and the reason for this also appears to be a greater focus on core shipping activities and vessel S&P. Major national players like Bahri and NITC appear unlikely to have the cash for aggressive M&A. Plus, in light of the fact that there’s less diversification of their cargo, it’s more challenging for tanker businesses to move into onshore operations.
Independent Ship Managers
In addition, the industry has seen private equity take a decent-size role in the sector. Experts say that this will drive future M&A activity because of the availability of dry-powder funding. V.Group and OSM Maritime activity indicate there’s probably going to be future consolidation in the ship management sector.
Key Drivers in the Shipping Industry
Hellenic Shipping News emphasized that the transformation into a sector outside of core business operations has its risk.
More expertise and management reporting is going to be required after any of these expansive acquisitions. There will need to be reliance on experienced advisors with knowledge of the sector.
The key drivers of successful financial performance will be critical when executing an acquisition to achieve this objective.