Seafood M&As are changing – Here’s how
It’s not only the rate of M&A’s that has slowed in seafood but the shape and structure of deals too.
M&A deals in the seafood industry are being reshaped by current economic factors that are impacting both the rate of dealmaking and how deals are structured.
The rate of M&As in the seafood industry is expected to be hindered by the difficulties in raising financing, said John Doucette, executive vice president and head of commercial lending for US-based M&T Bank.
“I think it’s going to be at a lesser pace just given the cost of money now,” Doucette told IntraFish.
A recent IntraFish report forecasted the number of global seafood M&A’s this year is likely to fall short of 2022 levels.
While international companies have been showing interest in moving in on US acquisitions, particularly in the then-northeast corner of the United States where the seafood industry is more fragmented, Doucette said commercial interest rates play much more into executives’ thinking.
“It’s just tough with the prime rate at 8.5 percent, and although (the US Federal Reserve) didn’t raise it the other day they certainly didn’t give any indication that they are going to reduce rates anytime soon either. It’s going to rely on more self-financing too,”
Must have?
The higher cost of capital is also making buyers more cautious, leading to the postponement of deals considered less strategic, Ignacio Kleiman, managing partner at investment banking firm Antarctica Advisors said.
Acquisitions generally fall into two categories “must have” and “nice to have,” Kleiman said.
“If you are presented with a have-to-have transaction, you are going to find a way to do it. If you are presented with anice-to-have transaction, you may do it or you may decide to postpone it a bit.”
While there is still a good volume of M&A activity, in part helped by pent-up demand left over from the COVID-19 pandemic, deals that are going ahead are seeing a greater use of earnouts and seller financing arrangements.
Earnouts are a pricing structure in which the sellers must “earn” part of the purchase price based on the performance of the business following the acquisition.
Seller financing is an arrangement in which the seller handles the mortgage process instead of a financial institution. Instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the seller.
“Transactions are getting done. I think that buyers are being a little bit more disciplined on how they put the transactions together and what transactions are getting done because the cost of capital is forcing them to pursue transactions that have a fairly higher level of synergies in order to recoup some of that more expensive capital that they are using,” said Kleiman, who spoke on the changing nature of the seafood industry at a recent seafood industry forum in New Bedford, Massachusetts.
The event, which drew 60 seafood business leaders, was organized by M&T Bank, which operates over 1,000 branches in 12 US states, and accounting firm Citrin Cooperman, with the support of investment banking group Antarctica Advisors.
The forum was targeted at key seafood players in the New Bedford and the wider New England community to exchange ideas on current events affecting the sector. It’s hoped the forum might become an annual or biannual event.
Be creative
Where previously companies may have worked with a commercial bank and ended up signing a single check to make an acquisition, these days buyers and sellers need to be a bit more creative in how a deal is structured.
Companies may opt not to sell all of their shares in the business, retaining a minority and rolling over some of their equity, exiting perhaps three to five years later.
“It requires a little bit more creativity with buyers, a little more flexibility on both the seller and the buyer side.”
“Today, more than ever, you need an investment banker to help those transactions happening,” Kleiman said.
The northeast corner of the United States with its proliferation of $100 million to $400 million (€93 million €372million) seafood companies is proving attractive to those on the lookout for acquisitions including overseas investors, offering them more manageable deal sizes and boosting the likelihood of consolidation, Kleiman said.
“In terms of international players, I think the Europeans are a little more aggressive than the Asians, that’s why you see more movement on the east coast,” Kleiman said.
On the West Coast there are few processors, and in the Alaska-Seattle corner of northwest United States companies are frequently very large or very small, with little in between, he noted.
Even in the most challenging times, deals can be done, however, said Kleiman.
Despite the difficulties presented by COVID lockdowns, Antarctic Advisors still managed to close its biggest-ever deal in January 2021 when Premium Brands Holdings and a coalition of Mi’kmaq First Nations completed the acquisition of Canadian shellfish harvesting and processing giant Clearwater Seafood.
For Premium Brands the acquisition was a must-have deal. “Everyone decided to chug along,” Kleiman said.
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Source: Intrafish
