CHAMP Ventures enters lonely waters
The Torres Strait separates the northern tip of Queensland from Papua New Guinea. It contains more than 270 small islands, most falling under the jurisdiction of Australia, and of which only a handful are inhabited. Cairns, the nearest urban center, is 1,000 kilometers away, or a one-hour flight.
The residents of these islands are among the isolated communities in Queensland and the Northern Territory whose demand for food, fuel and building materials are met by domestic shipping company Sea Swift. Its coverage traces the Australian coast all the way from Darwin to Gladstone, taking in far-flung fishing communities and inland mining outposts.
In addition to transporting essential supplies, the company's 27-vessel fleet - plus some onshore logistics - is a service provider to infrastructure projects run by Rio Tinto and BHP Billiton.
CHAMP Ventures last week bought a majority stake in Sea Swift with HabourVest Partners participating as a co-investor. The enterprise valuation was in the region of A$100 million.
"It is a classic succession-style deal," Paul Readdy, a director at CHAMP Ventures, tells AVCJ. "The company was set up 25 years ago and the founder is approaching retirement. In 2008, he brought in a new management team, led by CEO Fred White who used to work for Xstrata in central Queensland. The management team is taking a stake in the business alongside us."
This is the fourth investment from CHAMP Ventures Investment Trust No. 7, which reached a final close of A$475 million in June. According to Readdy, the private equity firm had sufficient capacity to cover the deal but brought in HarbourVest - which is an LP in the most recent fund - because of the capital structure and the growth strategy it has in mind for the firm. Specifically, shipping is a capital intensive business and there should be ample opportunity for follow-on investments.
Sea Swift's fleet is expected to reach at least 35 vessels in the next five years. A significant portion of these resources will be devoted to serving the liquefied natural gas (LNG) industry. There are currently seven LNG projects in Queensland, five of which are already at an advanced stage. They include an $18.5 billion joint venture between Santos, Petronas, Total and Kogas in Gladstone and an $20.4 billion BG Group-backed project on Curtis Island.
CHAMP Ventures has enjoyed success with similar investments. TSmarine, an oil sector-focused coastal shipping business, was exited to Furgo for $91 million last year, while energy distributor Ausfuel was sold to Archer Capital in 2010 for a 2.5x money multiple.
"The same characteristics attracted me to Sea Swift as Ausfuel," says Readdy. "You aren't going to get 8x on these deals because of the capital intensity but 2.5-3x with a relatively low risk looks pretty good."
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