Private equity investment in the shipping industry
Private equity funds vary greatly in size and investment objectives. Some private equity funds look for long-term returns; others seek to make high returns on short-or medium-term investments (three to seven years). The latter have been the main force attracting private equity funds to the shipping sector, which is cyclical and has expectations for recovery and long-term growth.
Private equity generally consists of making investments in equities of non-listed companies. Besides capital, the investors become active owners and would usually provide the companies with strategic and managerial support to create value and resell at a higher price. Value creation in private equity is primarily based on achieving increased growth and operational efficiency in acquired companies. The type of investments can include a number of different structures, as follows:
• Direct equity or investment in companies;
• Bridge financing and mezzanine financing for shipping companies needing short-term liquidity
• Debtor in possession, which entails buying the debt of operators or buying portfolios of vessels;
• Sale-lease back transactions, which entail vessel sales of shipping companies to leasing companies, a large cash inflow and leasing the vessel back from the leasing company in order to maintain operations;
• Joint ventures formed to acquire, manage and sell shipping businesses.