Private equity’s massive war chest puts seafood industry in the crosshairs
With plenty of ‘dry powder’ to detonate, private equity funds are competing with each other and the seafood industry itself for deals.
A growing number of the world’s investors are waking up to something only a small group of private equity funds, trade buyers, venture capitalists and M&A advisors have known for years: there’s big money to be made in seafood.
The race is on, and the accelerating rate at which private equity firms in particular are investing in the seafood sector shows that fund managers recognize the industry — processing, fisheries, aquaculture and equipment — has all the right drivers.
Simply put, there is a lot of demand for capital in the seafood industry, and private equity funds have more cash to deploy than ever.
Private equity firms are benefiting from market tailwinds triggered by historically low interest rates and record fundraising.
In the US alone, private equity “dry powder” — the amount of money funds have to invest — is at an estimated $150.1 billion (€132 billion), according to PWC’s Private Equity 2021 Mid- Year Outlook.
And that dry powder is being put to use. Private equity-backed M&A deals more than doubled to a record $818.4 billion (€722 billion) in the first nine months of 2021, up from $315.2 billion (€278 billion) last year, according to Reuters.
Birgir Brynjolfsson, a partner at Antarctica Advisors, a boutique M&A specialist focused on the seafood sector, said the trend in private equity is coinciding with a growing need for investment in everything from new technology to new vessels, facility upgrades and consolidation.
With underlying assets that appreciate in value — plants, vessels, fishing quotas and licenses — and a growing demand for its products, the seafood industry has become “very attractive” to the sector, Brynjolfsson said.
Getting more aggressive
Ten years ago, Antarctica Advisors was knocking on the doors of private equity funds trying to introduce them to seafood as an investment opportunity. It took a lot of time, effort and salesmanship, and for the most part few funds took the plunge.
“Today we are in a position where we are getting the phone calls from the different private equity funds asking us for opportunities,” said Brynjolfsson.
While big names have invested in the sector in the past — Altor, Bain, Permira and Carlyle to name a few — the trend has accelerated over the last few years.
In October, the $6 billion US private equity fund ACON snapped up US scallop supplier Northern Wind plus two small Canadian lobster companies in a deal advised by Antarctica.
Last month, private equity group Paine Schwartz, the former owner of Alaska processor Icicle Seafoods, acquired a 50 percent stake in Hendrix Genetics, the owner of shrimp and salmon egg, smolt and broodstock suppliers, including Kona Bay, Troutlodge and Landcatch.
There is no single reason that could be considered a turning point for the uptick in interest, but rather there are a combination of factors, Brynjolfsson said.
With more capital being allocated to private equity, these funds have to look further afield for interesting opportunities, and seafood is, to many of them, new territory.
In addition, some segments of seafood are now emerging as a potential fit for funds investing in sustainability focused companies.
And most importantly, seafood consumption — the No. 1 driver of the sector — is growing and shows no sign of declining.
The typical lifespan
Typical private equity funds have a limited life cycle, and look to deliver a return to investors and sell off their stake in a company within 5-7 years.
Whether the limited life cycle of a private equity fund is long enough for it to make a significant difference depends on where it invests in the sector and value chain, however, and some investors have paid significantly for not understanding the subtle nuances of the sector.
“In some case 5-7 years is an acceptable period, but in other cases you may not achieve what you wanted to achieve in that period because of external factors out of your control,” said Brynjolfsson.
Magnus Bjarnason, managing partner at Iceland-based advisory firm Mar Advisors, noted that the sometimes unpredictable nature of some segments of the seafood industry, especially fisheries and aquaculture, can make private equity’s timeline too short.
“Seafood is a tremendously profitable sector, but it is also cyclical … and these cycles make it difficult for private equity to get used to,” Bjarnason told IntraFish.
While Bjarnason does see private equity activity picking up, he sees equally strong growth in institutional capital and pension and family funds, whose longer horizons are sometimes a better fit.
Part of private equity’s challenge is that shaking loose owners from their stakes can be difficult in the seafood industry, where private ownership is higher than in most other sectors, and founding families and their descendants can be strongly committed to their businesses, Bjarnason noted.
That is giving rise to a hybrid model where investors essentially partner with private owners, with both bringing assets the other party doesn’t have: money, and expertise.
A battle for buys
While private equity funds increase their activity in seafood, existing large seafood companies with the means to acquire and consolidate have been more passive of late.
Ignacio Kleiman, managing partner at Antarctica, said the pandemic forced many potential trade buyers to look inwards and handle the challenges of day-to-day operations, which for some companies was the right move.
“There was a lot of organic growth, and good margin expansion because demand was strong, so I think that made them happy,” Kleiman told IntraFish.
The year prior, when the reality of the pandemic first set in, the economic uncertainty and inability to travel had a chilling effect on industry consolidation.
“A lot of deals were put on hold, or they slowed down, or they died because of the inability to travel,” said Kleiman.
“It is very difficult to make a large investment decision if you are not able to thoroughly kick the tires in person. That affected volume in 2021 [and] I think in 2022 the picture is going to be substantially different.”
Private equity tends to follow the deals, and move into sectors where competing funds are active.
Additionally, when funds buy into a company, the strategy is often to grow that company both organically and through add-on acquisitions, so it stands to reason more deals will be forthcoming.
“This is definitely the beginning of something more that is coming, no doubt about that,” said Antarctica’s Brynjolfsson. “We’ve never been busier.”
