Factors behind the Interest of Equity Firms in Transport Terminals

Large equity firms, such as mutual and sovereign wealth funds as well as investment banks and pension funds, became interested in owning a stake in various terminal assets, notably port terminals, because of several value propositions:

• Intrinsic value. As physical assets, terminals have an intrinsic value mostly related to land value, infrastructure and equipment. Since terminals tend to occupy highly accessible locations that cannot be effectively substituted, this rarity implies high valuations. Traffic growth linked with globalization made terminal assets even more valuable, so the intrinsic value of terminals is also directly related to the traffic they handle. The higher the traffic, the more valuable is the land that supports terminal operations.
• Operational value. Terminals provide a source of income, linked with the rent they generate, which in turn is directly proportional to the traffic handled. This insures a constant revenue stream as freight traffic tends to have a limited, or at least an easily predictable seasonality. Future traffic growth expectations result in income growth expectations.
• Risk mitigation value. Transport terminals are quite standard in their infrastructure, equipment and operations implying that their business model can effectively be replicated in a variety of markets. This enables private equity firms to diversify their portfolios in different segments of the transportation industry (ports, airports, rail) while at the same time undertaking a geographical diversification. Terminal assets located in different regional markets help mitigate risks.

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