What happened
On Wednesday, Brookfield Infrastructure Partners announced plans to acquire a container leasing company for significantly more than that company's public valuation.
Investors in Textainer Group (TGH), another container leasing specialist, are taking notice, sending shares of Textainer up as much as 12% despite no company-specific news.
So what
Textainer is in the business of buying, selling, and leasing shipping containers including intermodal equipment that can easily be transferred between rail, truck, and ship. These containers play a massive role in the global shipping market, but the leasing companies can sometimes be tough to value because they need to add inventory when times are good and then find a place for it when demand falls.
Brookfield Infrastructure apparently believes the market is underappreciating container lessors right now. The investment specialist agreed to acquire Textainer rival Triton International for $13.3 billion, a 35% premium to Triton's Tuesday close.
Textainer and Triton are separate companies, but the deal if nothing else shines a spotlight on the sector's attractive valuations. Prior to the deal announcement Textainer and Triton were valued similarly in terms of a multiple to earnings and a multiple of sales, and investors appear to be reading into the Triton deal price and concluding Textainer has upside potential from here.
Now what
The comparison is a natural one, but investors should remain cautious. After a strong few years of pandemic-impacted demand for shipping services, the threat of a global recession, or at least a slowdown, has markets worried about the health of the shipping sector.
Brookfield is a long-term-focused investor, and management in deciding to do this deal likely concluded that it was willing to ride out any near-term headwinds to bring Triton in-house. Investors sizing up Textainer should be cognizant that there is little these companies can do during periods of shipping weakness.
Textainer shares could be a buy after the Triton deal, but anyone who wants to take the plunge should buckle up and realize it might take time for the company and its stock to match the highs Triton holders are experiencing today.
