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Opinion: will Kirby’s deal trigger consolidation in US towage?

Fri 09 Feb 2018 by Martyn Wingrove

Opinion: will Kirby’s deal trigger consolidation in US towage?
Kirby operates one of the largest tug and barge fleets in the US

Kirby Corp’s acquisition of rival tug operator Higman Marine and its affiliated companies could start a period of consolidation in the sector. Kirby announced its intention to purchase Higman Marine in a US$419M deal on 2 February.

Its management sees this deal as an alternative to ordering newbuildings in 2018 and a way to build the fleet ready for an upturn in the inland towage market.

Through this deal, Kirby will gain a marine transportation fleet of 75 inland towboats and 159 inland tank barges, with a total capacity of 4.8M barrels. This cash acquisition could be completed during the next two months if the customary closing conditions are met.

Higman’s fleet moves petrochemicals, refined petroleum products, crude oil, natural gas condensate, and black oil on the Mississippi River system and Gulf Intracoastal Waterway for large midstream and global integrated oil companies.

Around 80% of this fleet of 30,000-barrel tank barges transports clean products and the rest carries black oil, said Kirby president and chief executive David Grzebinski. He added that the average age of the barge fleet was seven years, while the average age of the towboats was eight years.

“The addition of Higman’s towboats to Kirby’s horsepower profile will allow us to avoid significant future capital outlays for new towboats,” said Mr Grzebinski.

This acquisition comes at a time when the US inland towage sector and tugboat prices are at historical low levels. Therefore, it is a good time to conduct acquisitions as prices will be depressed, owners may be willing to sell, and there are expectations for an improvement in the market in 2018.

Mr Grzebinski expects the market to improve from this year and wants Kirby to emerge from the historical lows as a stronger group. “The timing of the Higman acquisition is ideal as it will further upgrade our fleet and ultimately allow Kirby to emerge from the downturn larger, more efficient, and better able to serve our customers,” he said.

“As the cycle improves, and we realise the benefits of integration efficiencies and synergies, this acquisition will improve the earnings potential for Kirby in the future.”  

Mr Grzebinski said Kirby will have to increase its borrowing and thus its debt levels to purchase Higman, but it will “rapidly deleverage post-acquisition”. This is likely to involve divestments and tug sales.

If the US inland towage market is about to improve, then other towage companies could see this as a time for building their fleets and strengthening their position through mergers and acquisition. This could be a good time for consolidation.

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