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DEALTALK-Brazil port M&A frenzy proves not cheap for MSC, Dubai World
April 19, 2017 / 1:01 PM / 4 months ago

DEALTALK-Brazil port M&A frenzy proves not cheap for MSC, Dubai World

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By Tatiana Bautzer and Guillermo Parra-Bernal

SAO PAULO, Apr 19 (Reuters) - Dubai Ports World Co and MSC Mediterranean Shipping Co SA are seizing on Brazil's three-year recession and rising debt among local port operators to bid for terminals in one of the world's top commodity exporters. However, their plan will not come cheap.

Half of the 12 terminal and ports sales negotiated in Brazil since January 2016 were at prices above multiple averages, Thomson Reuters data showed. People familiar with three of six ongoing port deals in Brazil expected sellers to fetch 20 percent-plus premiums for their assets, based on regional multiples.

Local ports have gained extra allure in the wake of a government drive to privatize infrastructure in Latin America's largest economy, even if global maritime activity remains tepid. Foreign players perceive Brazilian port operators as less prone to facing roadblocks than other infrastructure segments, Eleven Financial Research chief strategist Adeodato Volpi Netto said.

A record grain crop and a recovering economy should keep ports busy, potentially accelerating M&A activity before valuations climb further. Port deal vaulations in the Americas averaged 8.9 times future earnings before interest, tax, depreciation and amortization, data compiled by Thomson Reuters showed.

"Timing seems right for these deals as interest from global players in Brazil's port industry keeps growing," Volpi said. Brazil has about 37 state-owned ports and 180 privately-held terminals.

MSC is offering partner TPI Triunfo Participacoes & Investimentos SA the equivalent of 12 times expected EBITDA for a 50 percent stake in PortoNave, a Santa Catarina-based private port, and a nearby cold storage unit, three of the people said. Triunfo needs the cash to honor looming debt payments, the people said.

After abandoning talks to buy Advent International Corp's 50 percent stake in TCP Terminal de Conteineres de Paranagua SA due to price issues, DPWorld is negotiating partner Odebrecht SA's 66 percent stake in Santos-based Embraport at similar multiples, the people said. Odebrecht's involvement in a graft scandal in Brazil has delayed conclusion of the deal, they said.

Even terminals perceived as a mature value play, like TCP, have seen resilient valuations.

According to the people, China Merchants Group Ltd would be willing to pay slightly more than 13 times expected 2017 EBITDA for Advent's stake in TCP, despite the port's limited expansion opportunities. The bid would value TCP at 3.5 billion reais ($1.1 billion), two of the people said.

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MSC did not return a message seeking comment. Advent, Triunfo, Odebrecht, China Merchants, DPWorld and Odebrecht had no immediate comment.

The people spoke under the condition of anonymity, citing confidentiality accords surrounding the deals.

Potential takeover targets include liquid bulk terminal AGEO Terminais e Armazens Gerais SA and Porto Itapoa, located in the southern Santa Catarina state, three people said.

AGEO's owner, Cynara Ruiz, has hired the investment-banking units of Banco Santander Brasil SA and Banco Bradesco SA to handle a sale, two people said. Itapoa's owners Battistella Administracao & Participacoes SA and BRZ Investimentos SA-led funds may this week hire a team of financial advisers to conduct a sale, one person said.

Brazil's D'Avila family is also considering putting Terminal Portuario de Itajai SA, or Teporti, up for sale, one person said.

AGEO, Itapoa, Teporti and the banks did not immediately have a comment.

Brazil's port industry is undergoing deep changes, with returns seen declining as shipping firms gain scale through M&A. Denmark's Maersk Line, the world's No. 1 shipping company, announced last December the purchase of smaller rival Hamburg Sud, which may put pressure on rates, the people said.

Competition has especially increased in the Santos port, Latin America's largest, hampering profits for container players. New terminals began to operate in the Santos port in 2014, when the economy slumped into recession - leading to a supply glut that only worsened as demand declined.

$1 = 3.1149 reais Reporting by Tatiana Bautzer and Guillermo Parra-Bernal; Editing by Andrew Hay

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