DP World plots consolidation path with acquisition of Topaz

By acquiring Topaz, DP World has bought a solid company, likely at a discount on its book value, but a lot of the value of the fleet is linked to its location.

If all of Topaz’s vessels were in the Middle East, Maritime Strategies International’s (MSI) Forecast Marine eValuator tool estimates put the fair market value of the Topaz fleet around US$700M. In that particular region, Topaz’s platform supply vessels (PSVs) would be valued at about US$170M with the rest of its fleet worth roughly US$530M.

However, Topaz has more than half its fleet – 65 of its 117 vessels – in the Caspian Sea. Vessels operating there are worth considerably more because of the difficulties in mobilising vessels into the region, a reality reflected in Topaz’s 2018 annual report, where the fleet’s book value was listed at US$1.24Bn.

So what does that mean for the US$1.1Bn DP World paid? A lot of the deal’s fundamentals are dictated by the kind of synergies its diversified businesses can create.

While the onshore upstream market has seen significant vertical integration, with players such as Wood Plc consolidating businesses in the US sector in a bid to develop a comprehensive logistics function, this same integration has not really been replicated in the offshore oil and gas business, as yet.

However, another of DP World’s recent purchases presents an opportunity for the business. In December 2018, the EU gave the green light to DP World’s takeover of Unifeeder – a container shipping line which has the potential to link DP World’s big hub container ports with smaller regional ports, giving the diversified conglomerate the opportunity to offer big liner companies an integrated service.

As an example, if they get a container box to the London Gateway terminal, then DP World can get it from there to a smaller regional port. In short, with its economies of scale and ability to carry multiple cargoes from multiple container lines at one time as an independent operator, the integrated group can offer a more efficient service than a big liner company.

A separate parallel with the offshore oil and gas industry is DP World’s framework agreements for dive support vessels (DSVs). In the framework agreements – which were driven by oil companies – a number of operators band together to hire a DSV for a season. Applying this rationale to OSVs would see a PSV operator sign supply agreements with multiple oil companies and then service them using a fleet of PSVs from a supply base. On an individual supply run, a PSV would serve multiple rigs and platforms controlled by different operators.

MSI has reason to believe this business model was considered for use in the North Sea at the start of the industry downturn, but we have not yet seen it put into practice. In the Middle East and Caspian regions, where Topaz does the majority of its work, one or two oil majors dominate. As such, the model is not an overly obvious one to use in either region.

One other arena of operations offering DP World the potential for vertical integration would be working to improve control of the interface between vessel and supply base. But MSI’s analysis suggests this would be less of a disruptive move and comes with less potential upside.

In its Topaz acquisition, DP World has certainly bought a great company at a discount to book value at the bottom of the market. Whether DP World got good value for money remains to be seen. We suspect that, for DP World to meet its expectations for a return on its investment, it will have to generate synergies with its wider business. It is MSI’s view that they have paid above net asset value – even when factoring in a Caspian premium.

Mr Frew has more than 10 years’ experience in analysing maritime markets and takes overall responsibility for MSI’s analysis of the container shipping and offshore oil and gas markets. Additionally, he takes a lead role in larger bespoke consultancy and research projects across shipping sectors.