Private Equity The exodus is here or is it?

Transcription

1 Private Equity The exodus is here or is it? Marine Money conference November 2015 Niels Lyng-Olsen Partner, Pareto Securities Inc.

2 $23bn of private equity (PE) invested in shipping Source: Marine Money 2

3 What attracted PE to shipping in the first place? A global recession and banking crisis A distressed, highly cyclical, capital intensive industry A low cost of capital environment A great environment to put a lot of money to work! 3

4 Current private equity sentiment on shipping PE has a lot of skepticism related to shipping as an asset class not many PE funds have made money questions about corporate governance The typical PE model of buying assets, creating a large private company and eventually exit in an IPO, has not worked for a few years Quotes from a seasoned private equity executive 4

5 What are some of the key challenges? The traditional PE model is based on value creation through active enhancement of cash flows and profit margins However, forecasting commodity shipping freight rates is challenging Shipping cycles are unpredictable and generally don t match up nicely with PE s three to five years exit plans Execution risk is real whether one invests in large ECO newbuilding orders or older vessels Exit liquidity is a significant issue 5

6 American Phoenix - A successful PE shipping investment New asset Lowest construction costs Right industry partner Supportive supply/ demand outlook Shale oil and MLP market developments were gravy 6

7 Future outlook - PE will adjust approach, but not abandon shipping Expensive education for PE so far, but investors have a much better understanding of shipping dynamics and there is lots of capital to deploy Investors will seek to be closer to the assets, more structured transactions with ships in the water Execution risk is real so the right industry partner is key Days of big newbuilding orders are over Will be stuck with drybulk and container investments for some time Tanker exits are happening Greenbriar/Ardmore (secondary offering) Livanos/Euronav (secondary offering) A pollo/princimar (trade sale + secondary block trade) 7

8 Shipping investments are not different for PE investors Buy and sell the right asset at the right time Safely operate the assets Have the cost structure and patience to navigate the industry cycle Good projects will always find capital - Ridgebury V4 is the best and most recent example 8

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