Cheap capital fuels M&A push but deals are getting pricier, Cooke says

Central banks’ responses to the COVID-19 pandemic have contributed to a flood of cheap capital that is adding fuel to the seafood sector’s push to consolidate.

But with more institutional investors, such as private equities and pension funds, getting into the space alongside industry players, company valuations are getting more expensive. That’s at least the view of Glenn Cooke, the CEO and founder of the eponymous Canadian seafood conglomerate.

Cooke, speaking on Feb. 3 as part of a panel during the National Fisheries Institute’s online Global Seafood Market Conference, said that the deal-flow in the sector at present is “on par” with previous years. He added that interest from institutional investors heightens competition for acquisition targets.

“That makes deals a little more expensive,” he said. “You’re seeing multiples on the high side today in seafood, maybe too high, but, for us, we like resource. If we can buy more resource, whether that’s farming or fishing, either one of those resources are of interest for us.”

He added that his company, which has its roots in salmon farming but diversified into seabass and seabream farming, shrimp aquaculture, several wild-catch fisheries and into processing and distribution, has further ambitions downstream.

“If we get closer to the customer, whether it’s secondary processing or distribution, all those have interest to us to grow. We want to get closer to our customer. We want to get close to the final product that’s consumed by the customer. And then we’d like to control the resource where it started. So, it’s kind of simple,” Cooke said.

Panelists, who broadly predicted a surge in foodservice spending due to pent-up demand once vaccine distribution improves, also included Ignacio Klieman, the managing director of Antarctica Advisors.

The mergers and acquisitions advisor said he sees multiple drivers behind the push for more sector consolidation this year. Strategic investors want to secure access to resource, for example, food security is of increasing interest, and COVID-19 prevention costs are shifting cost structures. That all favors bigger seafood firms, Kleiman said.

“I think, and I hope it’s going to be, 2021, 2022, is going to be very active. And the interesting part is we see that across the value chain,” he said.

Recent weeks have seen the closure of several big deals in the sector including the sale of US salmon processor Peter Pan Seafoods and Canadian shellfish harvester Clearwater Seafoods.

“Clearly those players that were stronger financially and had a wider footprint managed to weather the storm better and are going to be in a position to continue consolidating,” he said. “Those that had it balanced, as opposed to putting all the eggs on either retail or foodservice, having that flexibility also proved to be strategically valuable.”

Kleiman said that while he’s seeing a lot more “theoretical interest” in seafood from financial investors outside the sector, 95% of those interested parties tend to bow out once they’re fully briefed on the sector’s complexities.

”A lot of the complexity is very high and that’s when some people say, ‘OK, it wasn’t as easy as I thought’. And that’s why, you know, the universe of actual investors is smaller than, uh, than what it looks like,” he said.

Ian Smith, Clearwater’s CEO, said on the panel that any investor into seafood needs to keep in mind the sector’s particularities, what distinguishes it from other proteins.

“You need to know what you’re doing otherwise it’s easy to get burned. It’s not easy to make acquisitions. Having a big bag of money is helpful. But if you don’t have a knowledge and experience behind what you’re doing, you’re not going to be successful,” he said.

Smith added that companies that were strong operators coming into the pandemic are likely to emerge as strong operators once the virus threat ebbs.

“If you were not, if you were a marginal operator in your sector, then COVID just blew you up in terms of exposing all the weaknesses that you have in your operating model whether it’s access to the market access to supply it, it blew you up,” he said.