Private equity owned or backed shipping companies are increasingly venturing in the ships-for-shares deals with listed ship owners. In an exclusive interview with Hellenic Shipping News Worldwide (www.hellenicshippingnews.com) Mr. Daniel Saunders, a London partner with law firm Watson Farley & Williams (www.wfw.com/) explains the growing popularity behind this trend and the reasoning behind it.
Lately, we’ve been witnessing a growing interest for ships-for-shares deals? Is this the case from your standpoint as well?
Yes. We’re definitely seeing it more.
Mr. Daniel Saunders
What’s the reasoning behind this trend? Which the pros/cons for each involved party?
A lot of the reasoning behind the trend towards these deals can be gleaned from its other moniker: ‘IPO via M&A’. Instead of private equity investors in sellers (a lot of whom got into the market around the 2013/2014 mark) looking to exit or liquidate their investments through IPO’ing their own fleet separately, they can more efficiently achieve a similar result through selling to a major listed shipping entity and receiving shares in such entity in part or full consideration. It allows their investment to be more liquid than having to sell the steel and repay any debt financing.
As there are not many buyers that might have the access to capital to buy a full fleet of vessels, offering shares can often better facilitate a more efficient fleet purchase, rather than the potentially less attractive (and certainly less efficient) process of selling the fleet off vessel by vessel to multiple buyers.
The fact that the shares issued will not be immediately freely tradable may be seen as a con for the seller, as the seller will consequently have some risk in relation to the stock price.
However, we have seen that sellers generally don’t intend to immediately dispose of the consideration shares, instead looking to sell opportunistically in the future into what is hopefully an improving market for shipping stocks. From the buyer’s side, to the extent their shares are trading at a discount to NAV, as they have recently been in many sectors, these deals represent an opportunity to use shares as acquisition currency much more effectively than by conducting a public equity offering to raise cash for acquisitions. Pricing discussions will focus on the relative NAV of the buyer’s and seller’s fleets as well as on the current market value for the shares, and the use of share consideration in these transactions is often essential to striking a mutually-attractive deal in current market conditions.
Can it be traced back to a general difficulty of obtaining finance, through the traditional route?
A lot of the bigger listed owners will usually have decent access to finance of varying types, however, from a buyer perspective, a mixed shares and cash consideration will allow them to finance an overall lower amount but still a greater portion of the cash consideration, which can be attractive.
Which deals in particular can you highlight?
We would certainly highlight the series of deals conducted by NASDAQ listed, Athens headquartered Star Bulk Carriers Corp over the last 18 months with acquisitions from Songa Bulk, Augustea, E.R. Capital Holdings and most recently Kelso backed Delphin Shipping. Altogether this represents an acquisition of over 40 bulker vessels via ships for shares deals. In great part, it was these deals that led to Marine Money naming Petros Pappas (CEO) and Hamish Norton (President) as Dealmakers of the Year. WFW advised Star Bulk in connection with a majority of these deals through the combined efforts of our London, Greek and New York based offices.
Also of note in the Greek market is the sale by NS Lemos of four container vessels to Ship Finance International in return for a mix of cash and shares in Ship Finance International, a transaction which WFW also advised on.
At the moment, which segments of the market are more likely to pull off such moves?
This seems to be somewhat agnostic – so long as there are public companies looking to acquire the relevant assets and sellers looking to create more liquidity to their fleet investment, often at a discount to net asset value. We have probably seen the most activity in the bulker segment, but there have been notable deals in the product tanker and containership market as well.
The larger companies with volume in their trading would be more attractive for sellers, because sellers will want comfort that there is a good market in which they can sell the shares they receive, and hopefully not have terrible fluctuation in price between the time of execution of the sale agreement and time that they will have the ability to resell the consideration shares.
How active/inclined are Greek owners towards such types of deals?
We would say that it’s more the profile of the relevant company (both on the buy and the sell side) and the relevant fleet to be sold than the nationality of the owners that makes the difference. Sellers are most likely to be PE or PE backed ventures, buyers are more likely to be the listed entities with the larger trading fleets.
Nikos Roussanoglou, Hellenic Shipping News Worldwide