Anti-trust issues likely to spawn M&A opportunities

Infrastructure funds have hardly been blessed with opportunities to buy container terminals in recent times. The latest one of scale was Infracapital and InfraVia Capital Partners’ sale a year ago of Italian container terminal Terminal Darsena Toscana to shipping and logistics firm Grimaldi.

Then came last Tuesday (5 March) the largest ever deal in the sector’s history: an agreement by BlackRock, Global Infrastructure Partners and Terminal Investment Group – the Swiss global container terminal ports operator backed by GIP – to buy an 80% stake in Hutchison’s 43 ports in 23 countries, including in the UK and Germany as well as in southeast Asia, the Middle East, Mexico and Australia. They also agreed to buy a 90% stake in the ports of Balboa and Cristobal in Panama.

The next largest deal happens to have taken place almost 20 years ago – PSA’s purchase in 2006 of a 20% stake in Hutchison Ports for USD 4.4bn.

The latest deal shines a light on the intersection of geopolitics and infrastructure in the current age, particularly as it followed pressure from Donald Trump over alleged Chinese influence on the Panama Canal.

By contrast, just weeks earlier the UK Prime Minister, Keir Starmer, is said by sources to have personally invited KKR and CKI – Hutchison’s sister company – to file bids for a large stake in Thames Water, a move aimed at keeping the business afloat and avoiding it being nationalised.

The latest mega deal – beaten in the infrastructure finance sector only by the likes of Blackstone’s whopping EUR 42bn take-private of Italy’s Atlantia – is set to catapult TIL, which is also backed by Singapore’s GIC, to become the world’s second largest port operator. It is also the next chapter in the firm’s rapid growth since its takeover by GIP back in 2013.

It is also a story about the global domination of MSC – the 70% owner of TIL – which as well as being currently the world’s largest container shipping company will also as a result of this deal become the globe’s largest owner of container ports.

“This deal will skyrocket the MSC-led terminal operating group to the top of the global terminal operators league table – overtaking industry heavyweights including PSA International, DP World and APM Terminals,” according to a report on the deal by maritime research consultancy Drewry.

Strategic significance

The transaction is also of strategic significance for TIL and MSC not least as they are buying Hutchison’s terminals at Port Botany and at the Port of Brisbane, giving TIL and MSC a foothold in Australia where they don’t currently have terminals.

It will also give TIL a far stronger position in south-east Asia where Hutchison owns several terminals within the sprawling Laem Chabang Port in Thailand and a large minority stake in Malaysia’s Port Klang’s largest operator Westports – while TIL holds shares in just one operating terminal in the region at the port of Singapore.

The sale price was an eye watering USD 22.8bn, equivalent to an enterprise value/EBITDA multiple of 13.5 times.

Although the price was above the average 10 times multiples listed port operators are trading globally, Drewry senior associate Eleanor Hadland says it makes sense for BlackRock, GIP and TIL to pay such a premium given it gives the acquirors access to terminal capacity in major ports that they would otherwise struggle to acquire.

“The majority of growth for container terminal operators is either organic growth from existing facilities or M&A as the opportunities for privatisation and greenfield are very limited,” she says. In contrast the market in the 1990s grew at double digit rates annually driven largely by privatisations.

Valuations in the private markets have been higher,  with a stake in Forth Ports having traded in 2018 at around 20 times multiple EBITDA, and Brookfield’s 50% stake in PD Ports expected to go for a similar multiple. However, these are freehold ports while Hutchison in the main owns concession terminals, which are valued lower.

The deal also represents the next chapter in BlackRock’s determined push into traditional infrastructure – a move that began in earnest when it acquired GIP last year.

“For BlackRock, the acquisition marks a further push into the ports and infrastructure sector, reinforcing its commitment to long-term asset investments,” says Drewry.

The deal is also likely to throw up M&A opportunities for infrastructure investors given several potential anti-trust implications.

Hutchison owns indirect stakes in three terminals in Rotterdam via its majority shareholding in ECT – Delta Dedicated North Terminal, ECT Delta Terminal and Euromax Terminal – and a direct 100% stake in another, the Hutchison Ports Delta II.

TIL meanwhile owns a controlling stake in the 9 million twenty foot equivalent unit (mteu) capacity PSA MSC European Terminal (MPET) in the Port of Antwerp and a 49.9% in the not too distant Hamburg operator HHLA. It is likely therefore that adding Hutchison’s adjacent terminals will fall foul of anti trust regulators and therefore GIP-BlackRock-TIL will have to sell them.

Similarly TIL’s purchase of a stake in Hutchison’s wholly-owned 3.3 mteu capacity BEST facility in the Port of Barcelona will give it a potentially dominant position given its 100% stake in nearby MSC Terminal Valencia.

“We therefore expect that the transaction may well trigger some divestments to meet the requirements of the various competition regulators,” says Drewry.

The deal with Hutchison takes place after a period of rapid expansion of TIL – fuelled not least by container volumes that its terminals receive from its sister company MSC.

TIL’s steady growth

Back in 2018 TIL owned some 40 terminals worldwide, its largest ones being at the ports of Antwerp, Singapore, Gioia Tauro and Long Beach, and was ranked seventh globally for throughput that totalled that year with some 26.5 mteu measured on an equity-adjusted basis – a long way behind the number one player PSA Hutchison with 60.3 mteu and Hutchison Ports with 46.7 mteu.

TIL come 2023 while still ranked seventh had managed to close the gap on its competitors.

Drewry reported that year that both terminals owned by TIL and also by MSC – which acquired multimodal logistics operator Africa Global Logistics in 2022 and several Italian terminals held via wholly-owned subsidiary Marinvest – handled some 42.3 mteu. Of this some 86%, or 36 mteu, was sourced from TIL, according to Drewry’s Eleanor Hadland. Today TIL owns some 70 terminals, according to its website, although several of these are in development or construction.

In sharp comparison, Hutchison’s between 2018 and 2023 declined from 46.7 mteu down to 43 mteu, while DP World’s remained flat at just above 44 mteu. The top player, PSA International, saw its equity-adjusted volumes rise by a mere 2.6 mteu during this period.

Hutchison bought many of its terminals in the early 2000s during a wave of privatisations, giving it a strong first mover advantage, but has been a reluctant acquirer beyond these.

“Hutchison has been happy to have ports there as a cash cow. They have been cash generative in markets where just being the dominant operator is a barrier to anyone else entering the market,” says Hadland.

Indeed, Hutchison Ports earns an EBITDA margin of 35%, outperforming the 23% of its sister company CK Hutchison Holdings Limited – the conglomerate founded by businessman Li Ka-shin with interests also across retail, telecommunications, infrastructure and finance.

With margins such as these, and deals of such scale rarely coming available, the Hutchison deal makes good sense for GIP and BlackRock’s infrastructure-hungry executives.