Page 14: of Maritime Logistics Professional Magazine (Q2 2014)

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Insights

Maritime Finance and Risk

Maritime businesses face a broader range of risks than most.

A look at some recent business transactions is proof enough.

By Harry Ward

R isk is a critical element of every maritime-re- lated business transaction from a fi nancial risk management perspective, a market perspective, or often both. As with most business segments, maritime dealmakers and fi nanciers employ elaborate risk management tools to evaluate the effi cacy of acquisitions, loans and investments. But perhaps even more important are the markets for goods and services that have developed around the risky nature of most marine business sub-seg- ments. These markets have attracted a great deal of invest- ment in recent years as maritime companies strive to man- age their risks in order to enhance fi nancial performance as well as improve their public relations and safety records.

Maritime businesses face a broader range of risks than most, from navigation and safety in normal at-sea operations to the threat of piracy and catastrophic collisions or environmental mishaps. Just a few months into 2014, mariners have already faced nearly 100 pirate attacks with dozens of crewmem- bers taken hostage. Ship collisions and groundings remain a regular occurrence with incidents from the US Gulf Coast to Virginia to South Korea already this year, bringing human casualties as well as environmental hazards. And of course, the mystery of the vanished Malaysian Airline fl ight 370 has ignited a massive high-profi le search at sea, bringing focus to the challenges of tracking and locating any object in the expansive maritime domain.

Risk Creates Markets

In recent years such risks have spurred deal activity in busi- nesses that are dedicated to maritime safety and environmen- tal matters. In December 2013, France-based Orolia (NYSE

Alternext Paris: ALORO) announced its agreement to acquire

Techno-Sciences, Inc. (TSi) of Beltsville, MD. Orolia has grown via a number of successful acquisitions and is fi rmly established as a leader in the emergency response market and in the Maritime Domain Awareness (MDA) sector. In January 2014, Orolia announced the creation of McMurdo Group to unite its Positioning, Tracking and Monitoring Division and its Boatracs, Kannad, McMurdo, SARBE and TSi brands.

With the acquisition of TSi, Orolia has added capabilities in- cluding satellite ground stations and mission control software, as well as coastal surveillance and offshore asset protection solutions. Orolia has experienced solid growth and is actively pursuing additional acquisitions in their niche markets.

Safety and environmental compliance are focus areas for

Drew Marine, which was acquired by an affi liate fund of pri- vate equity group The Jordan Company from another marine- savvy PEG, J.F. Lehman & Company last November. Con- currently with the Drew acquisition, The Jordan Company acquired Lehman’s portfolio company ACR Electronics. ACR is a leader in maritime and aviation safety and survival solu- tions such as rescue beacons and lighting products. As noted in a past article, J.F. Lehman acquired OPA 1990-compliance leader National Response Corp (NRC) from Seacor in 2012.

In March of 2014, NRC completed the add-on acquisition of

UK-based Sureclean Limited, a provider of specialty environ- mental and industrial solutions.

Examining another area of risk, recent months have brought a handful of deals in marine security and defense. In early 2014, The McLean Group represented 3 Phoenix in their sale to Ultra Electronics of the UK for $87 million. 3 Phoenix pro- vides real-time sensor and processing solutions, primarily for

Navy radar and sonar systems. The company will augment

Ultra’s existing Tactical & Sonar Systems division. In April

TE Connectivity (NYSE: TEL), formerly Tyco Electronics, signed an agreement to acquire SEACON Group, a provider of underwater connector technology for military and other subsea customers for $490 million in cash. Finally, Swed- ish military contractor SAAB has just announced that it is in talks to acquire ThyssenKrupp Marine Systems, a builder of submarines and warships in Europe.

An interesting deal took place in Canada during the fi rst quarter, when a group of independent board members of

Rutter Inc. consummated a tender offer for the shares of the publicly-traded company. A provider of defense, navigation and maritime surveillance technology centered mainly on radar applications, Rutter had been struggling for years and watched its share price fall by 95% since 2006. The investor group commenced their tender offer to buy all the outstanding shares of the company in January, and by March had received deposits of more than 38% of the shares, giving the group an 80% controlling interest overall. The new owners will now de- list Rutter from the Toronto exchange and perform an acquisi- tion of remaining shares at the same price as their tender offer. 14 I Maritime Professional I 2Q 2014 1-17 Q2 MP2014.indd 14 5/16/2014 11:42:35 AM