Brookfield to Buy Container Lessor Triton for $4.7B as Market Softens
In an interesting play on the perceived opportunities in the container industry, well-known alternative asset manager Brookfield announced a deal to acquire Triton International, the world’s largest owner and lessor of intermodal containers. The cash and stock transaction values Triton’s common equity at approximately $4.7 billion and reflects a total enterprise value of approximately $13.3 billion.
The deal comes as the near-term prospects for the container industry are in question as shipping volumes dropped precipitously on many of the major routes around the world. With falling freight rates, many carriers are expected to report steep declines from their record profits of a year ago. Two months ago, Triton predicted a subdued 2023 outlook characterized by a gradual trend down in container utilization driven by global economic and geopolitical challenges.
The company reported a 55 percent increase in net income or nearly $697 million in 2022 on a 9.5 percent increase in total lease revenues or a total of nearly $1.7 billion for its leases. Despite reporting utilization continuing at approximately 98 percent, Triton reported a more than nine percent decline in sequential net income between the third and fourth quarters while warning investors that the first quarter is typically the slow season for dry containers. Further, they forecast that used container sale prices and disposal gains would begin to decrease more quickly in the first quarter.
"The trajectory of our performance after the first quarter will depend on how market conditions evolve,” said,” Brian Sondey, Chief Executive Officer of Triton during the year-end financial report in February 2023. “The outlook for global economic conditions is uncertain, but our fleet remains well protected by our lease portfolio, and container supply and demand usually rebalance quickly due to the short order cycle for containers and the steady disposal of older assets.”
Triton bills itself as a critical provider of transportation logistics infrastructure supporting global supply chains. The company reports it has a fleet of 7.1 million TEUs supported by 19 offices across 14 countries. Its customers cut across the world’s leading shipping lines including MSC, Maersk, CMA CGM, COSCO, Hapag-Lloyd, HMM, ONE, Yang Ming, and others. Headquartered in Bermuda, Triton was started in 1980 and acquired by Warburg Pincus and Vestar Capital Partners in 2011 as part of the sale of assets from the Pritzker family. Triton grew its business reaching 4.2 million TEU with the 2016 merger with TAL International, and three years later in 2019, Warburg Pincus completed its exit via a secondary offering of the shares.
“Triton is an attractive business with highly contracted and stable cash flows, strong margins, and a track record of value creation,” said Sam Pollock, Brookfield Infrastructure CEO announcing the acquisition. “This transaction provides Brookfield Infrastructure with a high going-in cash yield, strong downside protection, and a platform for growth in the transportation and logistics sector.”
Triton’s recent strong performance reflected business decisions made in 2020 and 2021, a period in which Triton capitalized on severe supply chain constraints to drive rapid growth in its container fleet and to significantly extend the average duration of its lease portfolio. As global bottlenecks in ports lengthened shipping times Triton reports its customers were scrambling for containers. Brookfield cites the strength of Triton’s “irreplaceable asset base.”
Though going forward Triton expects its utilization will continue to gradually trend down due to challenging market conditions, the company is optimistic that its operating and financial performance will remain strong. Its container utilization currently stands at 97.6 percent.
“Brookfield Infrastructure's significant resources and long-term investment horizon will support Triton's franchise, underpin our commitment to providing unrivaled service and support continued investment in our growing business,” said Sondey.
The transaction is expected to close in the fourth quarter of the year subject to customary closing conditions including approval by Triton's shareholders and receipt of the necessary regulatory approvals.