Speaking at Marine Money’s mid-November event in New York Investment banker Mark Friedman, Senior Managing Director, handling Mergers and Acquisitions (M&A) at Evercore, remarked, as he began his presentation, “M&A is a passion of ours,” following up quickly with the observation that: “Shipping is a very different industry from almost any other industry that we cover.”
“Lately, there has not been a lot of shipping merger activity,” he said. Shipping’s quirky nature translates into a distinctive M&A landscape where “The Commodore is the controlling shareholder,” meaning that a large holder (rather than the company’s management team) will call the shots, when it comes to tie-ups and mergers.
“It’s a family business,” Friedman said, alluding to the heavy insider holdings in many listed shipping companies. Among the companies on Friedman’s slide were Torm, with Oaktree holding 63%; Frontline, John Fredriksen related entities holding 36%; and Tsakos Energy Navigation, with the Tsakos family holding 37%. Talking about this reality, Friedman said, “That family or individual has a very dominant influence on either acquiring other companies or not acquiring other companies, or from trying to prevent the company from being acquired.”
It’s not all bad, he suggested that having a large holder might “protect you from unwanted advances.”
Friedman opined that over time, shipping’s flow of M&A deals, “probably correlates pretty strongly with share prices and market capitalisation” and suggested that the present M&A cycle peaked in 2021 with the last few years being quieter.
One slide, where share price/Net Asset Value (NAV) was plotted against market capitalizations showed that “bigger is often better” with a comment that “the buy side looks for size and float”. He did note, later on, that smaller micro-cap maritime companies, many with hefty controlling shareholdings, are a market feature “unlikely to go away.”
In sizing up potential deals, he pointed to disparate valuations among peers, especially in stock for stock deals, financing costs – in particular for cash offers, and synergies - when it comes to mergers, though “not a key factor”.
With the weaker equity markets in 2022 and into 2023, Friedman pointed to a number of “going private” transactions often done at prices below NAV; his slide included Gaslog, Teekay LNG, Hoegh, and Navios, where Angeliki Frangou now controls near 65% of outstanding shares after a recent roll-up.
In a very recent transaction, Frontline’s purchase of Euronav shares, “a transaction ultimately driven by large shareholders”, he highlighted the variance in share price/NAV - Frontline’s was high, Euronav’s was lower - Friedman said, “When you have more disparity…it sets it up for a greater opportunity for a transaction.”
One “family business” that had some time as a public company, and went into private hands in late 2020 at a valuation around $1 billion, is Seacor Inc. Its CEO, Erik Fabrikant, the son of former CEO Charles Fabrikant, speaking after Friedman, acknowledged that the newer crop of investors were looking for “pure plays” in a particular “vertical”. As Fabrikant explained, multi-sectoral Seacor, in harbor tugs, coastal oil transport, barge leasing, and Jones Act container trades, was not able to create readily morph into a one-sector company, which would have seen a better valuation. Its exploration of alternatives led to its 2020 sale to New York-based private equity powerhouse American Industrial Partners (AIP, managing roughly $10 billion of capital for its investors ).
Seacor has recently sold off tugboat and inland barge businesses and it has entered into a partnership in the coastwise tank segment. Fabrikant explained that, three years into its place in the AIP portfolio, “We are doing what we always did, we were always a highly transactional group…the investment thesis in the take private transaction was that these verticals/ different business segments should ultimately find ultimately find a longer term structure…as independent businesses with sponsor backers, or as part of strategic platforms that are closer to their asset bases, to grow.”
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