The ship management sector is broadly split in two, between independent ship managers such as industry leading V.Group and in-house managers such as Mediterranean Shipping Company. Our research indicates that approximately 10% of the world merchant fleet greater than 5,000 GRT and built after 1991 are independently managed by the top 20 independent ship management companies.
Favourable economic and market factors are encouraging M&A consolidation activity. Independent ship managers in particular, the larger businesses, are bolstering their respective position to generate greater economies of scale, whilst the smaller regional players look to compete on price, quality and regional or sector expertise.
Recent transactions include:
Ship management companies tend to provide either, or all of the following services:
So what should you consider when performing due diligence on ship management businesses and what are some of the key value drivers?
Sector strengths – the smaller independent managers usually rely on serving specific sectors, as each vessel type e.g. tankers, bulkers or container ships will be subject to different management requirements and expertise.
Customer dependencies – ship managers can suffer from customer dependency, is the ship manager overly reliant on a single owner or vessel type? Is the ship manager part of a larger shipping group that uses a separate company to manage both its own vessels and third party vessels?
Vessel churn – linked to customer dependency is vessel churn. An acquirer should consider the vessel churn rate, and take into account whether or not they are contracted with reliable longstanding owners.
Claims – the level of claims against a manager can be indicative of quality of service.
Joint venture arrangements – complex and unwritten agreements are relatively common in the sector, so mutual understanding between parties can be difficult to capture and analyse through due diligence.
Client vs company cash – it is industry practice for the ship manager to hold client funds, so this should be reflected in in the cash adjustment for completion purposes, meaning there should be a clear distinction between client funds and company funds.
Supplier rebates – ship managers typically benefit from supplier discounts due to volume purchases (global rebates). It is important to consider these rebates as they have significant impacts on cash and valuation.
In addition to the above, there are many other issues to consider including: operating margin analysis, foreign exchange risk, international taxation structuring and assessment of normalised working capital.
If you are considering a transaction within the ship management or marine services industries we would be happy to help. Our experienced advisors can give you the support and guidance you need in dealing with the issues above and many others.
Source: Moore StephensPrevious Next