The growing role of private equity in maritime

The growing role of private equity in maritime
June 1, 2022 https://splash247.com/the-growing-role-of-private-equity-in-maritime/

Manish Singh has been a leading collaborator with private equity institutions focused on investing in and consolidation within the maritime sector. Over the last two decades he has worked with numerous blue-chip financial institutions and over 200 entrepreneur-backed maritime services businesses. Below he explains why he’s sure the role of PE in maritime is set to grow exponentially.

With maritime industry participation of private equity institutions (PE) increasing manifold over the last couple of decades, I often get asked if PE is a force for good or a fickle partner for the maritime industry.

I remain a strong proponent for greater PE participation against the backdrop of the maritime sector undergoing a generational change, be it infrastructural, tonnage, technologies or within support services.

A large number of maritime businesses that lead their chosen area of the industry remain in family or first generation entrepreneur ownership. A significant number of them are still led by founder CEOs of advanced age and unclear succession or future transition plans. To remain competitive in the post-covid, pre-decarbonisation maritime world, the majority of businesses are in dire need of future-ready leadership teams and considerable investment to transition to new operating models. One of the key bottlenecks for technological adoption in the maritime world is the high degree of fragmentation in pretty much every part of the industry. This also manifests in extraordinarily disparate capabilities between the top and bottom-performing players in every part of the industry. As part of delivering ‘Maritime 2050’ the industry will need investment and standardisation which requires greater economies of scale and higher consolidation. PE emerges as a key agent in the consolidation and transition of maritime businesses.

By its focus on positive selection, PE directs investment into the fittest and most scalable businesses in their chosen markets. By backing ‘entrepreneurs in residence’ in such businesses, PE is helping cultivate future cohorts of committed entrepreneurs to succeed the leaders who have led the industry in recent decades. Also, in its highly objective and time-bounds approach, PE institutions have forced many businesses to wean off the ‘way we do things here’, paving way for new operating models and efficiencies.

Recognising notable exceptions to celebrate in the maritime world, the risks with privately / family-owned businesses include the potentially lower pace of change, sub-optimal deployment of cash into getting the business future-ready, and limited opportunities for entrepreneurial managers to gain ‘skin in the game’. On the other end of the spectrum are the large listed corporations. The last couple of decades have also seen some spectacular rise and fall of public listed maritime corporations (PLCs). Whereas PLCs remain the most scalable and inclusive ownership structure, a market as volatile as maritime often gets unfairly punished for short-term shocks and the different risk appetite and investment timeframe typical of investors powering the public equity markets. So not all maritime businesses are suited to thrive in PLC structures either in the near-mid term.

So PE seems a very important piece of the puzzle, to work shoulder-to-shoulder with privately and publicly owned businesses to fund and deliver the change that our industry needs to undergo. This will span from fund-flow into new green technologies, non-carbon tonnage, addressing the technological debt in many parts of the sector, fuelling a vibrant start-up economy, backing the best maritime expertise and attracting new talent to the sector.

Love them or not, PE institutions are here to stay as key maritime stakeholders. As with the businesses they invest in, it is a ‘survival of the fittest’ among maritime PEs as well. Sustained returns will come only for the most committed and capable institutions with a long term view of the maritime opportunities and challenges.