Rising US interest rates likely to drive M&A, says veteran dealmaker
BOSTON, US — The US Federal Reserve’s plan to continue to increase interest rates in the US will likely drive consolidation in the sector, a veteran US-based seafood banker told Undercurrent News.
Earlier in March, the Fed voted to raise the range of the federal funds rate to 0.75% and 1.00%, citing progress in labor market growth, business fixed investment and inflation. According to an article from Yahoo Finance, officials also forecast three rate hikes in 2018, with the rate reaching its long-run goal of 3.0% in 2019.
“How will the industry react to the cost of money going up? There has been a lot of cheap money around, but this is going to change,” Ignacio Kleiman, managing partner of seafood-focused boutique Antarctica Advisors told Undercurrent, during the 2017 Boston seafood show.
Higher interest rates are going to impact smaller players as well as companies that need to hold a lot of inventory, he said.
“It is likely to drive more M&A. Any tectonic movements drive M&A [mergers and acquisitions]; if money is too cheap, you get more consolidation as there is a driver for bigger companies to go out and buy. But, if money gets too expensive, that also drives M&A as some companies will see their margins eroded,” he said. “For many, cheap financing has been key to their business.”
Antarctica has been one of the most prolific seafood-focused M&A advisory firms in recnet years, advising South Africa’s Oceana Group on its expansion into the US with the Daybrook Fisheries deal; Cooke Seafood on its buyout of Fripur in Uruguay in Argentina; and Seawatch International on its deal for Bar Harbor Foods, to name a few.
More debt work
Antarctica, which advised Canada’s Ocean Choice International on a recent refinancing, is seeing more interest from seafood companies on debt-related work.
“On the debt side, we have seen a pickup in work in the past three years. It was always a part of what we offered, but we are seeing more interest. We are doing work on the capital structure side and also advising on financing with banks,” he said.
“The banks want to work with the industry, but sometimes do not know how. We act as a kind of translator between what the industry wants and the banking system,” said Kleiman. “It’s a competitive advantage to get your financing right. There is a big difference between 6% and 3.5%. The big companies, who have access to the top tier banks, can get maybe 3.5%.”
