The corporate finance boutique’s Ignacio Kleiman said further consolidation is coming due to rising inflation and interest rates resulting in decreased consumption and increasing costs.
VIGO, Spain — With soaring inflation and higher interest rates, this food industry finds itself at a crossroads. In this turbulent market scenario, consumption in Europe, the US and other parts of the world has decreased while costs for producers and processors are climbing.
This “perfect storm” poses significant challenges to seafood businesses worldwide, potentially catalyzing a wave of consolidation within the industry; Ignacio Kleiman, managing partner of corporate finance boutique Antarctica Advisors, told Undercurrent News further consolidation was “inevitable.”
He explained that this consolidation arises from two key factors: the pressing need for companies to recapitalize due to excessive debt and the imperative to protect profit margins.
At the Conxemar seafood show, industry sources spoke about companies — either owned by private equity funds or family-owned –exploring the possibility of a sale.
Kleiman noted that companies that bought goods or services in dollars and sold them in euros faced increased costs that could significantly impact their expenses, making it difficult to pass inflated costs to customers in euros. He said this dilemma arises because the competitive economic landscape often restricts a company’s ability to raise prices without risking profitability.
“Companies burdened by high levels of debt are left with little choice but to seek capitalization, and others must consolidate to safeguard their profitability,” he told Undercurrent on the side of the Conxemarseafood exhibition last week.
Kleiman, who is based in Miami, US, stressed the impact of the high cost of capital in today’s financial landscape. He noted that the cost of money is currently elevated, leading to a shift in investment strategies among major players in the industry.
Unlike when “cheap money” has prompted spending, the present environment necessitates a “more selective” approach to investments. Kleiman believes that companies will carefully evaluate where they allocate their funds, considering the expensive nature of capital.
that thrived due to the availability of cheap capital. Thus, some have built significant inventories and engaged in distribution and trading but face higher costs in today’s financial climate.
Antarctica Advisors, based in Miami, plans to open an office in Europe soon to support clients in the region better. The boutique firm advised Peru’s Oceano Corp. earlier this year in the purchase of Sea FreshUSA.
Before the summer, talks for the purchase of seafood group NuevaPescanova by Canadian giant Cooke were put on hold due to the financial pressure experienced by the Spanish company. On Sept. 6, Pescanova formally communicated its intention to initiate a redundancy plan, known in Spain as Expediente de Regulacion deEmpleo, for as many as 100 staff. In 2022, the harder market situation encountered by the Spanish firm also halted the negotiations the group had previously held for the purchase of Argentinian fishing company Pesquera Veraz. Talks for a deal are yet to resume, although Cooke remains interested.
Meanwhile, Spain’s Grupo Iberica de Congelados (Iberconsa), owned by US fund Platinum Equity since March 2019, is soon to launch a refinancing plan for its considerable debt pile. Iberconsa was previously linked to Pescanova earlier in the process.
Atunlo, another prominent player in the Spanish tuna industry, has also reported a significant decline in sales during the last quarter, which has led to a cash flow issue the company aims to resolve in the coming weeks.
Another of Spain’s largest seafood processors, Fandicosta, has recently also been hit by cash flow issues. Its owner and president, AngelMartinez Varela, said he would be selling his firm to resolve those issues but then reportedly changed his plans for the sale and is looking for financial support from the Galician board (Xunta de Galicia) and banks.
Kleiman told Undercurrent the Latin American seafood industry is encountering a period of “unprecedented uncertainty” as political transitions in key nations create a challenging environment for businesses.
“Argentina, amid ongoing elections and substantial economic changes, is battling uncertainty spurred by drastic shifts and devaluation,” he observed.
“Chile, once celebrated for its stability, now grapples with political unrest due to proposed legal and regulatory changes, making it arduous for businesses to devise long-term investment strategies. Peru is dealing with the ongoing El Nino phenomenon, intensifying pressure on local companies,” he also said.
Meanwhile, “previously stable and operationally growing” Ecuador is entangled in political turmoil and rising insecurity, with imminent elections looming.
“The consequence of this political upheaval has created a dilemma for companies with strong financial capabilities. Faced with unpredictable local conditions, many businesses are turning their gaze abroad,” he told Undercurrent.
Thus, companies from Chile, Peru, or Ecuador are now seriously considering establishing footholds in the US or Europe.
“This shift is anticipated to significantly decelerate domestic investments, marking a fundamental change in the industry landscape, “he shared.
Kleiman’s observations also underscored another trend, with significant players showing reduced interest in the Latin American sector despite its vast potential.
“While sporadic large transactions occur, these investments representonly a fraction of the industry. They serve more as strategic maneuversthan substantial involvements,” he concluded.
He foresees an acceleration of consolidation within the seafood industry. While the cost of capital may restrict some investment activities, it also presents opportunities for those seeking strategic acquisitions or partnerships.
Source: Undercurrent News