The ship management sector is broadly split in two, between independent ship managers and in-house managers, while about 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, according to Moore Stephens consultant.
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 Marlow and Columbia Ship Management in September 2017, V.Group’s acquisition of Graig Ship Management in August 2017, Advent International’s acquisition of V.Group in December 2016, V.Group’s acquisition of Selandia Group in November 2016 and of Bibby Ship Management in March 2016, and Anglo-Eastern and Univan merger in August 2015.
Moore Stephens cites key points to consider when performing due diligence on ship management businesses:
- Sector strengths : The smaller independent managers typically rely on serving specific sectors, as each vessel type 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 the cash adjustment for completion purposes, meaning there should be a clear distinction between client and company funds.
- Supplier rebates : Ship managers normally 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, the consultant notes.
