Outstanding year in M&A in the ports and maritime sector

The global M&A activity probably hit an all-time high in 2021 with deals worth more than $4T. The same trend was followed on the port sector with part of the companies transforming into vertical integrated conglomerates and with a high involvement of the investment funds on the new deals.

Every company aims to see growth, to grow in a sustainable manner and in accordance to a defined policy, but there are different expanding strategies including organic or inorganic inorganice growth. Inorganic growth comes from mergers, acquisitions, and joint ventures that allow the companies to grow quickly.

The mergers & acquisitions (M&B) process

M&A is a general term that describes the consolidation of companies or assets through various types of financial transactions, generally looking for synergies that yield higher revenues, lower expenses , and/or lower overall cost of capital. Several studies claim however that 60-80% of the M&A fail to achived the expected targets.

M&A transactions typically include three phases as represented in the figure below.

(*) Integration Plan combines: external (i.e. customers, markets, products, services and systems) and internal integration (i.e. organisation, personnel, functions, operations, locations and facilities)

Figure 1. M&A transaction steps

Strategy development: an M&A strategy definition helps set clear expectations for all involved stakeholders. While each transaction is unique, any strategy should address what the company hopes to achieve with the deal and how it will get there. Once the internal strategy is agreed, the M&A Team should search and evaluate potential target companies. The target selection process needs to be done rapidly and the criteria explicit and transparent. For most selection processes, analytical rigor shall be combined with industry insights as industry knowledge is, at least, as valuable as any quantitative metric. The strategy development will end with the target selection and the submission of the letter of M&A intent.

Transaction: M&A due diligence (DD) is usually the most time-consuming and critical part of any M&A transaction. M&A DD requires a detailed examination and analysis of the target company from both internal and external sources. This helps verify the target’s value and identifies liabilities. With DD complete, parties make the final decisions on moving forward to define and negotiate the transaction terms until the final agreement.

The most common question of both firms (“buyers” and “sellers”)is how much the company is worth and how can it be made wore worthy. To solve those questions, a business valuation is to be carried out, in this regard Discounted cash flow (DCF) is one of the most used valuation methods to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The recommended approach is to complement DCF with the Multiple valuation methods that capture the mood of the market, a variable mostly ignored with the DCF method.

Integration: managing the integration of an acquired company in an effective manner is a full-time job and should be treated as such. Both parties should work together to ensure a seamless integration. Once the merger is complete, it’s important to continuously monitor the success of the newly established entity with ongoing health checks to ensure there are no compliance issues.

Different integration approaches are to be considered depending on the integration strategy, a specific level of organisational autonomy granted to the acquired firm(s) and a specific strategic independence. Prior research has to be carried out in order to identify relevant obstacles during the integration process, such as culture distance, operational disruption or organisational incompatibility. The four integration approaches are represented on the figure.

Figure 2. Firms integration approaches

M&A trends on the maritime port sector

The growth strategy of the companies operating in the ports and maritime sector has been adjusting during the time. Historically, horizontal consolidations were the most common M&A type in the maritime sector with an increasing consolidation of shipping lines and, in a slighter way, terminal operators. This consolidation of liners has recently increased the liners bargaining power in front of the terminal operators that, in most of the cases, found most of their business depending in one or two clients. This helped them to realize about the need for diversification.

In recent years the strategy of companies has changed and vertical consolidation has taken a more relevant role for companies looking to grow their presence in the marketplace and to control a higher percentage of the value chain. Part of the shipping lines such as Maersk were front-runners in vertical integration with companies controlling most of the steps in the supply chain, but recently some operators such as DP World or PSA have been increasingly expanding their operations in other sectors such as the shipping or the logistics.

As examples of deals (not only covering 2021) focused on vertical integration, DP World has acquired shipping lines such as Unifeeder (€660M, 2018), Feedertech (undisclosed price, 2020), and logistics services providers such as Syncreon ($1.2B, 2021) and is pursuing the acquisition of Imperial Logistics ($890M, expected in 2022). In parallel it has partnered with other logistics providers in specific regions of the world.

PSA has recently acquired BDP International (undisclosed price, 2021), a global logistics solutions provider that complemented other acquisitions in the maritime service industry like Tramarsa (undisclosed price, 2020), and the development of solutions such as Calista or Cargo Solutions.

Other companies, such as CMA CGM have regained control of their supply chain acquiring assets that were partially sold time ago to an investment fund, for example, the Los Angeles terminal Fenix Marine Services ($2.3 billion, 2021) or the acquisition of CEVA Logistics ($1.65B, 2019).

On top of the previous some companies have also developed their internal capabilities in fields such as air cargo transforming into logistics conglomerates.

Figure 3. Horizontal and vertical integration of major container terminal operators

In parallel with the previous, the traditional M&A activity has also continued strong. Some relevant recent deals include the acquisition of Ports America from Oaktree to CPPIB, the Global Infrastructure Partners’ (GIP) sale of a 10% stake in ports business Terminal Investment Limited (TIL) to TIL’s sister company, Mediterranean Shipping Company, the acquisition from Blackstone Infrastructure Partners of a majority stake in Carrix from the families that founded the global marine terminal operator or the acquisition by HPH of the Rotterdam Container Terminal from APM Terminals. Some relevant M&A deals during 2021 are included in the following table:

Source: ALG analysis, Inframation, 2021

Some of the trends of this kind of M&A are the increasing relevance of the investment funds that are present in the most relevant deals either alone or in partnership with terminal operators. This increasing availability of capital has also helped to increase the prices of acquisitions, either measured on EBITDA multiples or on other valuation methods.

Now just lets hope that all this consolidation and integration is able to positively contribute to the competitiveness of the sector and the economy in general.


About the authors
Rubén Naveiro holds a MSc in Industrial Engineering, B.Sc. Industrial Engineer and is Principal at ALG rnaveiro@alg-global.com
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