Is the great equity bubble about to burst?
Private equity firms and other non-public shareholder groups such as Dubai Ports World (DPW), have entered the global ports and terminals marketplace to drive up values in the industry. Perhaps the initial driving force was DPW when it entered the Indian market outbidding its rivals.
This was followed early in 2006 with the purchase of P&O for the princely sum of $6.8bn,making it the third largest container port operator in the world. PSA of Singapore tried to play in the same league, but could not match the financial audacity of DPW.
As 2006 came to an end, two more sales provided us with an indication of the financial dealings in the market.
Orient Overseas (International) sold its North American terminal investments for $2.35bn. Consider some of the multiples that this implies: over 5 times turnover; over 24 times earnings and over 67 times net profits.
DPW sold the US operations of P&O Ports to AIG for a rumoured $100m, again at a very healthy premium to turnover and earnings. We have also seen Shanghai Ports (SIPG) come into the global market with investments such as in Zeebrugge alongside APM Terminals.
What conclusions can we draw from these activities? Firstly, the private equity firms have clearly moved in to the industry. They have been getting returns of investments of 17+% over the last three years, and over 20% in the last 12 months. Why not try their luck in ports and terminals operations? Interest rates are low, money is freely available and speculation is rife.
But still, are the sort of multiples evidenced above realistic or are we seeing a “dot.com” type of boom that is bound to burst in the not-so-distant future?
BEN HACKETT
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INSIGHT & OPINION
INSIGHT & OPINION
INSIGHT & OPINION