THIS year has been extremely active for shipping mergers and acquisitions. Next year looks like it will be slower, with a different landscape for both buyers and sellers.

“The activity this year has been very, very robust. Higher asset valuations and higher share prices tend to bring out both buyers and sellers,” said Evercore senior managing director Mark Friedman at the Marine Money Ship Finance Forum in New York.

There have been major M&A transactions on the private side in 2024, including Adnoc’s $1bn-plus purchase of Navig8 and BlackRock’s sale of its GasLog stake to GIC. There was also yet another privatisation of a listed company: MSC’s purchase of Gram Car Carriers.

There were share-for-share transactions among public players (the merging of Eagle Bulk into Star Bulk), public-to-public share-and-cash deals (the sale of Avance’s very large gas carriers to BW LPG), and the use of public shares to buy private ships (the acquisition of the MTM fleet by Pangaea Logistics).

But the market dynamics took a major turn this summer, changing the forward landscape for M&A.

“You can almost divide the year in half,” said Friedman. “Shares went almost straight up in the first half. The second half is almost a mirror image” to the downside. Shipping stocks began falling after June and declines accelerated in October and November.

Bulk commodity shipping spot rates are currently lower than expected. Rate outlooks for 2025 are uncertain. Asset prices for tankers and bulkers are trending downward, although not nearly as much as share prices.

There is also growing investor sentiment that disruptions supporting rates — the Red Sea crisis and the Ukraine-Russia war — could end, with the Trump presidency as a catalyst. “There are concerns around the reversal of black swan events that have been a useful factor in the freight rates we’ve seen,” said Friedman.

How lower stock valuations could drive M&A

“Is maritime M&A going to continue to be as active as it has been in the past year? Maybe not quite as active, but I think we may be surprised at the level of activity,” said the Evercore banker.

With stock prices weakening much more than asset prices, privatisations could drive more deals in 2025. Recent years have seen a wave of public shipowners taken private, including Gram Car Carriers, GasLog Ltd, GasLog Partners, Hoegh LNG Partners, Hoegh LNG Ltd, Atlas Corp, Seacor Holdings, Teekay LNG Partners and Teekay Offshore Partners.

“Given the dislocation of share prices, the most active part of the M&A market over the last four to five years has been privatisations. I think you could continue to see privatisations, particularly if we see share prices continue to stay weak and asset prices hold up relatively better,” said Friedman.

Weak share prices could also spur hostile takeovers of public companies, he added.

“Stock-for-stock hostile takeovers are really hard to get done. But if you have the money and there’s a lot of premium, I think all-cash hostile takeovers have the ability to be successful. We’re never seen much in terms of all-cash hostile takeovers in shipping, but this could be the year [2025] when we actually see it.”

Meanwhile, one of the biggest motivators of M&A — fleet renewal — is becoming more urgent. “The fleet will need to be replaced,” said Andy Dacy, chief executive of the global transport group of JP Morgan Asset Management. He pointed to the wave of tankers and bulkers ordered during the 2000s shipping boom that are now ageing out.

According to Friedman, “At some point you’ve got to refleet. All the companies want to get younger, but it’s hard to get younger. The orderbook is full of containerships and LNG carriers, largely crowding out some of the other sectors, and newbuildings are expensive — there are no bargains.

“If it’s hard to get organic growth in a normal way, that opens up real M&A possibilities. The question is: Are there M&A targets out that that have attractive younger fleets? There’s going to be scarcity, so I don’t think there are going to be any bargains here either, but the conditions are in place for a bid on the buy side.”

Buyers flush with cash with high debt access

Another potential driver of future M&A: Buyers are flush with cash and have very willing lenders. Dry powder for M&A deals is very high.

“For as long as I’ve been in the business, shipping companies have been over levered. This is the first time we’ve seen ‘fortress’ balance sheets in this space. We’ve seen a lot of cash accumulated,” said Friedman. He noted that during his career at the banker, public shipowners’ loan-to-value ratios have been around 50%-70% and are now averaging 20%-25%.

“At the same time, banks want to lend, so there’s just a lot of firepower out there in the market,” he noted. Shipping banks whose loans have been repaid by cash-rich shipping borrowers are anxious to get fresh debt out the door.

Panellists at the Marine Money forum highlighted the shift of shipping debt from term loans to revolvers, with revolvers allowing borrowers to lever up quickly and take advantage of acquisition opportunities.

According to one theory, shipowners realised high financial leverage is disastrous in an extremely cyclical industry like shipping, learned their lesson, and are now keeping debt levels lower to better manage cyclicality. Another theory is that shipowners have low leverage simply because asset prices are too high and they can’t spend their money on ships, so they’ve prepaid debt instead — and when asset prices normalise, leverage will jump back up.

“The point of delevering is to be able is to relever,” asserted Jeff Pribor, chief financial officer of International Seaways. “We could literally do a $500m deal tomorrow with our revolver and we could do a $1bn deal in a few weeks and I wouldn’t be afraid of where our leverage was. That’s the beauty of delevering. It gives us a lot of opportunity to act when the time is right.”

Peter Allen, chief financial officer of Genco Shipping & Trading, agreed with Pribor. “We’ve paid down 80% of our debt over the last three years, and we have the ability to relever with the cycle,” he said.

Could asset price decline trigger M&A in 2025?

Buyers clearly have the ability to buy. The big question for shipping M&A in 2025 is: Will asset prices fall enough to incentivise fleet sales, given that buyers — particularly publicly listed buyers — have a hard time buying at current prices, even if they need to renew their fleets? Will asset prices moderate to the extent that the bid-ask spread tightens and M&A gets done?

As of now, the same challenge to ordering expensive newbuilds applies to buying expensive fleets of modern secondhand tonnage.

According to Dacy, if you order new ships, “you have to convince yourself that these newbuilding prices are going to be sustainable. On the investing side, am I willing to spend $45m-$50m for an MR [medium-range product tanker] that has historically cost me $30m?

“If you think about the global fleet, the whole fleet is not represented by these newbuilding prices. You have a cost of the fleet that, for MRs, used to be $28m at the bottom and now it’s up to $50m, and the average is maybe $40m. The charter market is going to price off the average cost, so if you buy a newbuilding at $50m, you’re probably going to be running behind the eight ball for a while. So, I find it very challenging to figure out how to buy right now in traditional commodity shipping.”

Data from Clarksons Securities shows some material asset-price declines in October and November, although these declines are very unevenly spread among asset classes. Also, declines are still relatively small in most cases, with several segments seeing no drop-off yet. Prices for younger VLCCs haven’t budged and prices in numerous container segments are up.

Many of the largest declines are in asset classes that serve the shadow fleet handling sanctioned trades. Since October 7, the values of 15-year-old aframaxes, MRs, suezmaxes and VLCCs are down 12.8%, 9.1%, 8.5% and 5.2%, respectively.

According to Pribor, “The world built a fleet of 500 terrible sanctioned vessels for the Russian trade. That buying pressure helped asset values. Now that this job is done, it’s not surprising that there’s softness for older vessels.”

However, the Clarksons data suggests it is more than just the end to incremental shadow-tanker buying.

Asset-value drops over the past two months also feature non-sanctions segments: 10-year-old MR tankers are down 10% and five-year-old MRs are down 6.1%. Five-year-old ultramax bulkers, aframax tankers, and long Range two product-tanker values are all down around 5%. Five-year-old kamsarmax bulkers and ultramax newbuild resale values are off around 4%.

According to Darcy, “There are moments of ebullience in this business and there are moments of despair, and we’ve been in this ebullient phase for a while. My itchy finger suggests we’re starting to go into the cyclical nature of the business.”

John Michael Radziwill, chief executive of C Transport Maritime, said, “We think that there could be an opportunity to buy cheap assets again in the dry bulk space, but that’s ‘think’ with a capital ‘T.’ We don’t know, but we will be ready if they is an opportunity. You always, always need to be ready to buy.”