The last three years have been a wild ride for terminal operators as reports of acquisitions by financial institutions made headlines. But how much more is ahead for the marine industry’s hottest business?
By George Lauriat
There really hasn’t been a period of time quite like this for terminal operators. From the perspective of a financial institution, marine terminals just weren’t that attractive. It wasn’t that the institutional investment community didn’t take a peak but in the 1990s marine terminals just didn’t look like a very sexy investment compared to all the hi-tech and Internet based IPOs. After all, what sort of ROI (return on investment) could they expect from the ho-hum business of shifting containers? But within a decade the Internet bubble had burst while the astonishing flow of boxes from China and the Far East to Europe and North America continued unabated. In late 2005, investment houses began chasing terminal assets in earnest’and they were willing to pay dearly for the privilege.
Infrastructure funds, managed by institutional investors have been around for a long time, buying toll roads, public utilities, bridges and airports. Still it was a single acquisition, albeit massive, that started the run on Terminal Operators. But when Dubai-based DP World, outbid rivals like Singapore’s PSA or Hong Kong’s Hutchinson Whampoa (HPH) by plunking down a staggering $6.8 billion for P&O Ports in 2005, eyes opened wide in the global investment community. In the last two years there have been at least ten mega-deals, any one of which would have been considered market shaking a few years back (see Market Makers chart). But in 2006, TO deals were announced in rapid succession as institutional money poured in (see Market Makers Chart): Goldman Sachs consortium bought Associated British Ports in August; in September, Macquarie bought a stake in Hanjin’s terminal operations; in November, Macquarie struck again buying Halterm; in the same month RREEF (Deutsche Bank) grabbed nearly half of Peel Ports; the Ontario Teachers Pension Plan (OTTP) bought four terminals from OOCL’s parent; and in December AIG bought the (DP World) P&O US terminals. This year, Goldman Sachs bought a substantial piece of Seattle-based Carrix (parent of SSA Marine), RREEF bought Maher Terminals, and a Macquarie Infrastructure acquired APTL terminals in BC.
Given the generally poor ROI or ROA (Return of Assets) that the business generally registers, compared to other industries, it is amazing just how much the investment companies were willing to pay over EBITA (Earnings Before Interest Taxes and Amortization) for the Terminal Operators: Morgan Stanley forked over 22.4 times on the Montreal Gateway; OTPP almost 27 times for OOIH’s terminals; Macquarie Bank, nearly 23 times for Halterm; and Goldman Sachs (consortium) 14.6 times EBITA for Associated British Ports.
So what perked the interest of the institutional investors in Terminal Operators? There were a number attributes that changed the perception of institutional investors. Naturally, the limited availability of terminal space ’ waterfront property is always a draw. Some of the targets, like Maher, APTL and Carrix were owned and operated by families, leaving the door open for possibilities like an IPO down the road. Further these family owned companies often had major projects underway that were attractive. Steven Feldman, co-head of Goldman Sachs Infrastructure Investment Group said of the Carrix deal, ‘the Company [Carrix] has a significant number of important new projects in the pipeline and we are excited about the prospect of getting them to the operational stage and expanding the company’s assets.’ The attraction of bringing on new assets, certainly figured into RREEF’s purchase of Maher Terminals. The company is building a major box terminal in Prince Rupert Sound in the middle of one of the hottest market areas, the Pacific Northwest. At the time of the acquisition, David Kerr Managing Director and Portfolio Manager with RREEF