Header image

Europe 2019 M&A dented by US-China trade war; ports, airports eyed for 2020

Continued uncertainty over the US-China trade war, as well a mood of caution caused by the disruption of Europe’s Transport sector in the face of new technologies and regulations, created a hard landing in the second half of 2019, dealmakers told this news service. Still, there are pockets of optimism for 2020 as consolidation moves apace and low-cost opportunities arise for those with money to spend, they added.

There was no shortage of transactions, but they tended to be smaller, with deal numbers at 268 in 2019, flatlining compared the same exact number in 2018, according to Mergermarket data.

However, values were much lower last year, with a total of EUR 19.8bn for European transportation deals, plummeting by almost 31% compared to the EUR 28.6bn worth of transactions in 2018. The strongest quarter was 2Q19 at EUR 7.3bn, which was almost 38% of global sector transactions, with the lowest being 3Q19 at just EUR 2.1bn, representing just 7.6% of global deals for that quarter.

Despite the gloom on values, multiples of EBITDA on deals grew to 16.3x, higher than any of the last six years and compared to a multiple of 11.0x in 2018.

The success of 2Q19 was also mainly due to the mega consolidation play of Switzerland’s Panalpina WeltTransport Holding by rival Denmark’s DSV, in a EUR 4.2bn deal that landed it among the world's biggest cargo-handling and logistics companies.

Global tension and shipping impact

The US-China trade war brings a lot of uncertainty to transport transactions, several deal makers said. Relations between the two countries have improved as a result of a tentative trade deal, but a lot of negotiation is still needed for each phase and markets will take time to both trust and adjust, added Ioannis Giannoulakis, Greece’s business development manager for OSM Maritime.

Brexit also continues to impact, especially on the choice of headquarters in the sector, with many players leaving UK for sunnier shores, such as Cyprus, he noted.

Despite, or possibly because of, tensions between USA and China - as well as between the USA and Iran - the oil tanker market has rebounded, Giannoulakis added. Tanker Forward Freight Agreement volumes increased by 38% in 2019 compared the previous year, according to Baltic Exchange reports. The picture is gloomy in the dry bulk market, where small firms owning four or five vessels have struggled to find ways to address environmental regulations, increase fleet numbers and lower operational costs, Giannoulakis said.

On 21 January, the Baltic Exchange’s main dry bulk sea freight index fell to its lowest level since April 2018 at 729 points, with sluggish rates across the capesize and panamax segments, putting the brakes on growth. The all-time index high was in May 2008, when it hit 11,793.

New, international clean fuel scrubber regulations came into force on New Year’s Day. Together with technical disruption from other players, these are a key factor in the slump in drybulk, Giannoulakis said. Where companies cannot reduce costs they are forced to merge with peers, with sale a last resort, he added. Private equity investments remain an option in order to facilitate joint ventures and other strategies in the face of these challenges, a sector lawyer and a banker said. OSM Maritime Group (headquartered out of Norway) was partly acquired by private equity firm Oaktree, for an undisclosed stake and deal size last summer, as reported.

“We are definitely expecting M&A in both the tanker and dry bulk space, especially as players vie to enter alternative fuel plays such as LNG,” the banker said.

2020 is likely to see more JV deals in the sector in order for shipping players to both grow and spread the risk, the sources agreed.

Goldenport Shipmanagement is planning to set up a new joint venture (JV) in the dry bulk sector, as reported by this news service. A 50-50 structure is one option, but having set up several JVs, a three-way equity split is more appealing, as this will create a larger investment pool from which to acquire vessels, it added.

Restructuring plays will also move apace, both sources said. Troubled Nordic chemical tanker operator Team Tankers International in November announced it had hired strategic advisors to assist with M&A and divestiture opportunities.

Smaller sector disruptive players such as Wakeo, a France-based developer of SaaS which monitors transport logistics for large companies have tried to take advantage of the uncertainty caused by factors such as the US-China trade war.

“The core DNA of our company is based on these geopolitical issues we face today, with more uncertainty. We are bringing the reliability in this context.," Julien Cote, Wakeo founder and CEO said. Wakeo looks to raise up to EUR 9.5m by 2022 to expand in predictive software to facilitate better international transport flows.

M&A splash expected in ports

“We expect to see some serious M&A in ports, terminal and marinas this year,” the lawyer said.

Indeed, three of the top ten deals of 2019 were in the port sub-sector. This includes a EUR 1.4bn deal for DCT Gdańsk, Poland's largest container terminal, which PSA International, the Polish Development Fund and the IFM Global Infrastructure Fund acquired. Meanwhile, France-based CMA-CGM will sell a portfolio of stakes in ten international ports to Terminal Link, its joint-venture set up in 2013 and owned 51% by CMA-CGM and 49% by China Merchants Port. The deal shores up CMA-CGM’s balance sheet and nets EUR 861m, making it the seventh biggest sector deal in Europe.

DP World [DPW:DU], the Dubai-based global port operator, said on 21 January that it has acquired a 44% stake in Swissterminal Holding, an operator of several container terminals in Switzerland, for an undisclosed sum.

The Hellenic Republic Asset Development Fund (HRADF) is preparing to launch privatization processes for Greek ports, including those of Patras, Alexandroupoli, and Kavala in 1Q20, as earlier reported by this news service. Ten ports are being readied in total for privatisation in 2020, but those attracting the most interest will launch first.

Chinese, European and US players are especially interested in the larger port assets up for sale in Europe, a source familiar with these processes and the lawyer said, noting some of the ports are key transport hubs in and out of Europe.

The ability of China to further invest in Europe will also depend on regulatory restrictions being freed up, the lawyer said. The EU is working on a new foreign direct investment regulation, EUFIS (for EU Foreign Investment Screening), effective from October this year, she noted.

Airports on M&A runway

Airport investments remain popular as passenger air travel in Europe continues to increase, dealmakers noted. 2018 saw a 6% rise in passenger traffic compared to 2017, according to Eurostat data, and experts expect a similar if not bigger hike for 2019 once data is released.

Indeed, the second biggest transport deal last year was a 36% Stake in Brussels Airport Company, bought by a Swiss Life-led consortium EUR 2.2 bn.

Meanwhile, French construction and concessions group Eiffage [EPA:FGR] has acquired a 49.99% stake in French Aéroport de Toulouse-Blagnac (ATB), from Chinese consortium Casil Europe for almost EUR 500m..

Atlantia [BIT:ATL], the Italian infrastructure group, has already attracted strong interest for its 49% stake for Aeroporti di Roma, valued as high as EUR 2.55bn.

Investment in airport development is also expected from the Middle East, the lawyer said. Abu Dhabi Airports may look to form a joint venture with Romania-based South Development Group to develop five airports in Romania after both companies signed an initial Memorandum of Understanding in the autumn, as reported.

by Elaine Green with additional reporting by Jax Jacobsen and analytics by Thorsten Louie Pedersen 

Elaine Green Editor Mergermarket

Elaine Green is Editor - EMEA Bureaus at Mergermarket and is responsible for managing the Bureaus in Europe and Middle East and African (EMEA) as well as being Global Head of Shipping. She has been with the company since its inception in 2000 and is an experienced reporter, editor and manager having worked both within the group and at wide range of other European publications. Her qualifications include a Master’s in Business Administration (MBA).

Elaine Green Editor Mergermarket

Elaine Green is Editor - EMEA Bureaus at Mergermarket and is responsible for managing the Bureaus in Europe and Middle East and African (EMEA) as well as being Global Head of Shipping. She has been with the company since its inception in 2000 and is an experienced reporter, editor and manager having worked both within the group and at wide range of other European publications. Her qualifications include a Master’s in Business Administration (MBA).

Subscribe to Newsletter

Get exclusive content from our leading M&A and private equity events via our monthly newsletter.

Sign Up