M&As and determinants of financial multiples in shipping: the European ro-pax and ferry market

ABSTRACT

The paper investigates the determinants of M&As in the shipping industry by applying an original methodology paved on strategic management and financial perspectives. Despite the magnitude of the figures related to the financial deals and the potentially dramatic effects of M&As on the shipping industry, a literature gap persists in this business. No prior studies have theoretically and empirically addressed the determinants affecting the valuation process of target shipping companies. Therefore, financial multiples constitute a valuable method to address this topic. Given the relevance and size of the ro-pax and ferry market for the European maritime transport system as well as the increasing number of transactions, the paper investigates the determinants of the financial multiples in this market. The paper grounds on an original conceptual model that includes endogenous, exogenous, and transaction-related variables and proposes nine research hypotheses on endogenous variables. The hypotheses are empirically tested through ordinary least squares regression analysis on 85 M&As carried out in the 2005–2021 timeframe. The findings demonstrate differences between asset-side and equity-side multiples suggesting asset-side multiples are more suitable for pricing shipping companies. The paper adds extant academic literature by unveiling the principal endogenous variables that affect the due diligence of target ro-pax and ferry companies.

KEYWORDS:

• M&A
• target valuation
• financial multiples
• ferry
• ro-pax
• shipping

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. Since a limited number of industry experts exist in this specific domain, according to prior studies on related issues, a snowball sampling was performed starting from the business and advisory network of the Authors (Noy 2008). A small number of initial contacts (i.e. 3 experts) who fitted the research criteria set by the Authors for the empirical investigation were invited to review the framework. Then, they were asked to recommend other contacts who fit the research criteria and who potentially might also be willing participants and then in turn recommend other potential participants, and so on. A similar approach was adopted for selecting academic experts, starting from a list of 5 scholars, with a solid background in shipping M&As. The sampling finished once the panel reached the target size (i.e. 20). In detail, the panel was composed of seven experts from the industry and thirteen academics studying the sector and dynamics related to M&As. Experts hold positions as Chief Financial Officer (CFO, 3), Chief Restructuring Officer (CRO, 2) or technical consultants (2) in European shipping companies and related advisory firms: thus, they constitute a major target of the managerial insights from this empirical investigation. The thirteen international academics involved predominantly teach in the shipping strategic management (7) and shipping finance (6) domains.

2. EV = market value of common stock + market value of preferred equity + market value of debt + minority interest—cash and investments.