Sunday, July 3, 2011

Shake up at Dahlman Rose

Dahlman Rose, a premier shipping growth story, has seen a major management shake-up. The firm is undergoing senior management changes with Simon Rose retiring and Kim Fennebresque, replacing him as chairman. His partner Ernie Dahlman opted out as a manager a month earlier to devote his time to sales and trading. They also lost their top equity analyst, Omar Nokta. Dahlman Rose faces some serious challenges ahead.

Dahlmans rose as a startup from scratch in 2004 to a 200-person bank. It achieved rapid growth, doubling staff every 24 months and expanding from shipping into adjacent sectors like oilfield services, metals and mining and agriculture.

The 2008 meltdown had profound consequences for their core shipping boutique business. Shipping stocks plummeted. Most of them have since been underperforming the market. Equity sales fell back and the IPO market was shut for about a year. The brief window that opened last year for new IPO's proved largely a sucker rally. Several of the new issues subsequently tanked due bad investment decisions and poor timing. Investors again got badly burned.

The result this year is an increasingly selective and demanding investor market. Existing issues have a high dependence on retail investors. New money is restricted to limited shipping sectors and institutional investors are careful about entry prices, often demanding deep discounts.

The new chairman, Kim Fennebresque, most recently served as chairman and chief executive of Cowen Group with earlier stints at UBS and at Lazard Freres.

Searching for new opportunities, the firm recently teamed up with Blackstone to do shipping restructurings, hoping for a potential growth area in corporate restructuring of distressed companies. Of course, they are not alone in the idea of distressed asset investing. Peter Georgiopoulos (with personal experience in owning a company in distress from bad investment decisions last year) has created Maritime Equity Partners with Blackstone and Oaktree for distressed asset investments.

With the collapse in market capitalization, some are again calling for merger-and-acquisition (M&A) activity in the shipping space. Shares are often trading below NAV, but there is the deterrence of taking on the liabilities. Witness the trials and tribulations of the NewLead reverse merger with Aries, where there were substantial hidden liabilities with trade debt, bad operations and dicey assets. Why not simply pick up good vessels at low values and start clean?

It will be interesting to see whether other Wall Street brokerage firms face similar fall out. There has been major management reshuffling in Wall Street shipping with the turbulent markets. Some well-known shipping investment bankers have already changed firms several times in just a few years.

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