The top four container terminal operators HPH, PSA, APM, DP World control around 45% of the world’s (gross) container throughput, with no single company holding as much as a 14% share. Despite the poor financial performance recently, analysts expect major increases in terminal throughput over the next decade. Rumors of potential merger & acquisitions of terminals abound as TOs jockey for market share. The other side of the M&A question is will terminal operator consolidation trigger IPOs? George Lauriat, AJOTSetting The Stage: The IPOIn March 2011, HPH (Hutchinson Ports Holdings) arguably the world’s largest terminal operator, a subsidiary of the Hong Kong-based multinational HWL (Hutchinson Whampoa Limited), did something quite unexpected. HPH, spun off its port assets in Hong Kong, Guangdong Province, Macau and Shenzhen – some 30 container berths with a throughout of nearly 22-million teus – and created a new company HPH Trust. Given the size of HPH’s holdings (see chart) spinning off the South China core assets, wasn’t that unusual. However listing the new terminal company on the Singapore Stock Exchange (SGX) last March, might just be the industry setting event of the next decade. The road to IPO began in January of 2011 when HWL announced plans re-organize its deep-water container port businesses in Guangdong Province in Mainland China, Hong Kong and Macau and to list the new company, HPH Trust on the SGX. HPH Trust, was officially listed March 18, 2011, with a portfolio that included container terminals in Hong Kong (Hongkong International Terminals and COSCO-HIT Terminals) and Yantian, Shenzhen (Yantian International Container Terminals), as well as the “economic benefits” of river ports (Jiangmen International Container Terminals, Nanhai International Container Terminals and Zhuhai International Container Terminals (Jiuzhou)) in the Pearl River Delta and other services. Before the planned IPO could be implemented Singapore-based terminal operator, PSA International, which owns 20% of HPH (there is tremendous cross over business with terminal operators) had to divest from the soon to be HPH Trust assets. The IPO raised $5.45 billion, the largest in SGX-ST history (interestingly the IPO expressly excluded Dow Jones), and while this pales in comparison to the $104 billion “Facebook” IPO, the HP Trust launch has raised the profile of the Singapore exchange as the alternative to Hong Kong’s Hang Seng, especially for maritime related IPOs. HPH Trust bills itself, as the “first publicly traded container port business trust.” While there are a number of publicly traded container terminal operators, HPH Trust is arguably the first terminal operator to be built from the ground up as a publicly traded company. Generally, TOs are subsidiaries of other operating units, such as steamship lines, larger global conglomerates or in some cases venture capital funds. The real advantage to the IPO is access to capital for expansion. In this respect HPH Trust might be setting the stage for more TO IPOs. Quay developmentsIn 2011, global container TOs handled an estimated 590 million teus out of total capacity of 886 million teus, or roughly speaking the world’s terminals operated at 67%, reflecting the soft demand in 2011. But demand is expected to grow at 6% annually over the four years and capacity growth at a little over half that rate. By 2017, there should be an almost a balance between terminal capacity and terminal demand. By 2020 teu demand is forecast to outstrip terminal capacity as available space for developing new capacity diminishes. But terminal demand isn’t homogenous and some regions are hotter than others, and balancing the portfolio to take advantage of rising throughputs is feeding competition among TOs. In this economic environment, organic expansion is difficult and consolidation through M&A is a key element. There are around twelve TOs with a throughput exceed of 10-million teus annually with and six with a throughput of over 50-mi