US PE may eye scallop vessel buys after Northern Wind deal closure

It’s “possible” a sizeable US-based private equity may look at upstream deals for scallop vessels after closing the acquisitions of processor Northern Wind and two Canadian lobster companies, Suncoast Seafood and Raymond O’Neill & Son Fisheries (ROSF). 

ACON Investments has entered the US scallop sector in a big way with the deal for Northern Wind, based in the industry hub of New Bedford, Massachusetts. However, Northern Wind does not own any vessels, buying from third parties for its plant complex on the Whaling City’s waterfront. 

Ignacio Kleiman, the founder of Antarctica Advisors, the seafood-focused boutique advisory firm which advised Northern Wind on the sale, said upstream is one direction Acon could go with the lobster and scallops platform now named Atlantic Sustainable Catch (ASC). 

“That is a possibility”, Kleiman told Undercurrent News, when asked if Acon would look to add scallop vessels to ASC. He referred comment to Acon. 

Acon and Northern Wind have not responded to requests for comment, however. 

But multiple seafood sector sources told Undercurrent that it would be logical for the investor to get directly into harvesting as a next step after the processing acquisitions. 

If Acon does look at deals for scallop vessels, it would not be the first PE firm to do so. Bregal Partners, another US-based, PE-backed by a European billionaire family, has invested in scallop vessels with its Blue Harvest Fisheries platform with deals for Peabody Corp. and Harbor Blue Seafood. As Bregal is foreign-owned, it can only take a 25% stake in US fishing vessels. However, Acon would not have these limitations. 

Several other companies have also done scallop vessels deals in the past few years. Earlier this year, a company ultimately 25% owned by Canadian seafood giant Cooke added seven scallop vessels to its fleet. The seller was New Ocean, which is owned by Fleet Fisheries, a big player in scallop and lobster fishing in New Bedford founded and run by Lars Vinjerud III. 

“Having strongly capitalized companies would help the fleet to modernize. Obviously, there’s a lot of inefficiencies [in the sector]. A good part of the inefficiency is coming from the fleet and their regulations for fishing scallops,” said Kleiman. 

Whereas companies in Canada like Clearwater Seafoods can combine multiple scallop licenses on large, frozen-at-sea vessels, the US sector is much more limited. 

There’s no frozen-at-sea option in the US and no permit stacking to consolidate licenses. 

“The industry has been trying to modify the regulatory framework, but there are different interests that pull in different directions,” said Kleiman. 

The “wrong” regulatory framework then disincentives investment in the fleet, he said. 

Where will Acon go next with ASC platform?

Acon has clarified that Northern Wind, Suncoast and ROSF are starting points for ASC to make more bolt-on acquisitions. 

“We have a deep appreciation and respect for the leaders of this platform. They have trusted us with their partnership and we look forward to supporting their continued growth, both organically and through a focus on further add-on acquisitions,” said Suma Kulkarni, a partner at Acon, in a statement on the deal. 

Acon’s seafood sector play is a “growth game, not a shrinking game”, said Kleiman. 

The PE firm will look to add bigger volumes of lobster and scallops as well as more species to its platform, Kleiman told Undercurrent. “In Northern Wind, they start in the game with a good size, diversified seafood platform. This will allow them to add either more volume of similar species, or potentially other species.” 

He said that having a more comprehensive product range helps when negotiating with big customers in foodservice and retail. 

Northern Wind sells a “minimal amount” of lobster, so the addition of New Brunswick-based processors Suncoast and ROSF creates a big cross-selling opening, Kleiman told Undercurrent

The deal gives the lobster firms “a stronger entry to the US markets with a player [Northern Wind] that is very, very well established”. 

Northern Wind did some lobster in the past but “decided to focus on their expertise in sourcing, handling, and marketing scallops”, said Kleiman. 

“In their [Northern Wind’s] own words, [getting bigger in lobster] would have required important moves to be a player. Given their ownership structure, they were not really prepared to do this. Now it can be done,” he said. 

Getting bigger will allow Acon to make savings through scale rather than cost-cutting, said Kleiman. 

Acon has “done a good amount of prospecting in the industry for the last couple of years” looking for the right opening, said Kleiman. 

“We discussed how they wanted to participate in this industry. They [Acon] saw it as an area that needed — or allowed for – consolidation, where they could put capital to work to make it more efficient. They can help companies move away from selling scarce, valuable raw material and move more toward adding value to that process. The objective is not to take out costs by cutting down.” 

This approach is what Northern Wind’s founders, Kenny Melanson and Michael Fernandes, who remain shareholders and executives in ASC, wanted for the business. Melanson is interim CEO of ASC, Acon announced. “When you are buying into a situation like this, there’s no chance that you want to lose decades of experience in the industry, right?”

“Kenny and Mike are people with high energy and they have an excellent management team. They saw this as a gradual process over the next few years. It is exciting for them. It is exciting for management. It should be exciting for all the employees in these companies as it will allow them to grow,” he said. 

It was “extremely important” to Melanson and Fernandes to sell to a company that wanted to grow the business. Protection of the management and employees was vital, said Kleiman. “Northern Wind is a company that has a bit of a family atmosphere. A lot of people have been working there for 10, 15, 20 years, people that have been promoted from within.” 

So, protecting the staff was as crucial as getting a good financial deal to Melanson and Fernandes, said Kleiman. 

“These guys, they live in the community. They started when they were kids, right at the dock. I mean, they started from nothing. So, it’s pretty remarkable what they have built in terms of the business and in terms of the community around it,” he said. 

“When you are at a certain age, it’s difficult to make any investments and plan for the next 10-20 years,” said Kleiman. “When new blood comes in as ownership, it allows you to make those bold investments”, like merging with two Canadian lobster firms. 

Sources expect Acon to be a player in the upcoming sale process for the shellfish platform owned by Champlain Financial Corp., a PE firm based in Montreal, Canada. According to Undercurrent sources, Champlain has hired Houlihan Lokey and the National Bank of Canada to run a sale process. 

Champlain has built its platform C&E Seafood Company (Societe C&E Fruits de Mer in French) into a CAD 500 million ($404m) turnover business with a series of deals. 

Premium Brands Holdings, the acquisitive Starbucks sandwich supplier, and Solamere Capital, another PE firm, are also seen as possible bidders for C&E. Solamere, US-based and run by Taggart “Tagg” Romney, the son of former US presidential candidate Mitt. Solamere invested in the Daley Seafoods group of companies last year, as previously reported by Undercurrent

According to Undercurrent sources, Premium looked at Northern Wind. Premium has inked two deals in the US lobster sector, buying Ready Seafood Company and Maine Coast Shellfish. Then, earlier this year, Premium and a First Nations consortium acquired Clearwater, Canada’s largest shellfish harvesting firm. Undercurrent first reported the prospect of the deal in late 2020.