2021 was the busiest year for dealmaking in the global seafood industry to date, with a record level of dealflow. This was driven by a wave of new investment in the sector from external buyers, including private equity and investment funds, who were responsible for 43 per cent of all mergers, buyouts, investment and capital raises.
So far in 2022, this surge of dealmaking has continued, with the volume of acquisitions, mergers and joint ventures so far this year (as of the end of July) already outstripping the total for last year. The UK seafood sector has been a major part of this global boom, seeing a number of diverse M&A deals as a growing pool of buyer types takes notice of both industry expansion and higher distress levels among companies facing higher costs and post-Brexit issues.
The state of seafood dealmaking over the past two years
2021 set the tone for the current surge in seafood dealmaking, with a global outlay of $6.5 billion, according to figures cited in seafood industry publication Undercurrent News, making last year the most capital-intensive on record for the industry.
While the number of actual deals lagged somewhat behind pre-pandemic figures (with 65 deals during 2021 in comparison to 75 in 2019), the scale of deal value and the increase in volume from the 60 transactions recorded during 2020 meant that the sector entered 2022 amid expectations of a further acceleration in dealmaking.
This has been borne out this year in a huge way, with a total deal volume of 63 transactions by the end of July massively outstripping 2021’s rate. Clearly, by year end, deal volumes for 2022 are likely to be significantly higher than for 2021 and could even beat pre-pandemic figures.
Furthermore, given the scale of dealmaking and the number of major deals already announced so far this year (the biggest being the approximately £1.5 billion takeover of Norway Royal Salmon by SalMar) it is likely that deal values will also increase compared to last year.
What are the major trends?
One of the major trends in seafood M&A over the past two years has been salmon farming, with an intense level of dealmaking in the subsector. Much of this has been focused around the Norwegian market, which has seen several major deals during 2021 and 2022, such as SalMar’s acquisition of Norway Royal Salmon. However, deals have also been driven by ongoing pandemic-related distress and a broader need for firms to restructure their operations.
At the end of 2021, Norwegian salmon firm Grieg Seafood completed a deal to sell its Scottish salmon farming business to Scottish Sea Farms for £164 million. The sale of the business included 21 active salmon farming sites across Skye and Shetland, a land-based feeding centre, a freshwater facility and processing plant.
The acquisition came after Grieg had undertaken a three-year restructuring of its Scottish operations, having previously failed in a 2016 attempt to dispose of the business. The completion of the sale to Scottish Sea Farms, which operates across the Scottish mainland, Shetland and Orkney, enables Grieg to focus on its core Norwegian and Canadian markets.
According to Henning Lund, senior partner at Pareto Securities, much of the M&A activity within salmon farming is occurring as a result of firms realising the need to scale up their operations to adjust to the current state of the market. Lund commented: "It is becoming increasingly complicated in terms of structure and reporting [...] Companies need size to operate well and develop."
As new technologies emerge and issues such as sustainability become more paramount, companies are increasingly using M&A as a way to acquire the scale to meet these challenges. This is encouraging both domestic and cross-border deals, as well as prompting firms to make disposals in order to focus on growth in core markets (illustrated by Grieg’s sale of its Scottish business).
Emerging technology and sustainability
As with many active dealmaking sectors, the pace at which new and disruptive technologies are emerging is a key factor behind growing M&A activity in the seafood industry. Numerous seafood deals during 2021 and 2022 have involved so-called “aquatech” companies, which have become major targets for industry incumbents seeking to improve production and efficiency.
Furthermore, amid mounting concerns over the environmental impact of the global seafood industry (as well as aquaculture more broadly) and growing regulation, many of the emerging technologies in the seafood sector are heavily focused on improving sustainability.
The industry’s public body Seafish has brought together stakeholders to produce a framework to work towards the goal of having a thriving and sustainable seafood industry in England by 2040. The main objective is to raise the current weekly fish consumption of 150 grams (one portion) per person per week to 280 grams (two portions) per person per week, in line with NHS nutrition guidelines. The second objective is to ensure that wild catch fisheries are verifiably sustainable and productive, supporting coastal community resilience.
It is interesting to note that UK consumption of MSC (Marine Stewardship Council) labelled seafood has grown more than tenfold since 2010. Independent insights consultancy GlobeScan1 has revealed that 72 per cent of UK consumers recognise the importance of only consuming fish and seafood that comes from sustainable sources.
This is a shift that is reflected in many aquatech acquisitions and, in some cases, forms the basis for entire acquisition strategies.
One of the major dealmakers in the aquatech space over recent years has been UK-based group OTAQ, which in 2020 was acquired by private equity firm Hertsford Capital for £12.4 million before listing on the London Stock Exchange.
Since then, the company has embarked on an ambitious acquisition spree focusing on aquatech firms, several of which operate in the seafood space, with many of its deals also focusing on growing the company’s geographic presence.
In June 2020, the company acquired a minority stake in Minnowtech, a US-based startup which has developed an imaging platform that enables shrimp farmers to measure the abundance of their shrimp, which can help them to optimise the health and growth of their shrimp and enhance the size of their harvest.
OTAQ’s Chief Commercial Officer Chris Hyde commented: “We believe aquaculture is the key to sustainable food production and are very excited to be involved in a technology specifically aimed at the shrimp sector. This investment fits very well within our strategy.”
Following this deal, in May 2021, OTAQ announced the acquisition of a 10 per cent stake in Blue Lion Labs Ltd, a Canadian software firm focused on developing solutions to water-quality challenges, including real-time monitoring of harmful water-borne organisms, to enable the delivery of more sustainable food sources.
Commenting on the firm’s deals, OTAQ Chairman Alex Hambro said: "We are building a strong portfolio of innovative aquaculture products focused on reducing production risks as well as increasing yields and sustainability, and are confident that the long-term market fundamentals remain strong.”
However, it’s not just aquaculture and seafood-focused businesses that have been focused on acquiring disruptive aquatech companies. As an increasing number of new operators seek to enter the seafood sector, some market entrants are looking to tap into the latest aquatech trends through acquisitions.
In May 2021, Oslo-based seafood investor Bluefront Equity (which was founded in 2020 by former Broodstock Capital executives Kjetil Haga and Simen Landmark) announced that it had acquired a majority stake in Norwegian firm Redox.
Redox has developed an ozone system which is used to disinfect water intake and equipment between batches of fish, helping to improve the welfare of fish. Once water has been disinfected, Redox’s system automatically converts ozone into oxygen, improving the oxygen content of water.
Distress bites UK firms
Not all of the M&A activity in the seafood sector is being driven by growth and new technological developments, however. As regulation increases in the industry and companies contend with supply chain issues and rising costs, distressed acquisitions are becoming increasingly common.
This is a trend that is particularly prevalent among smaller and medium-sized UK firms, which have been hit by issues ranging from rising costs and delays post-Brexit and rapidly escalating prices for raw materials, an issue that has been compounded by retailers seeking to avoid raising seafood prices too quickly in their stores.
While larger seafood firms may be sufficiently diversified or have the economies of scale to deal with such issues, the cumulative impact of these factors has already proven to be fatal for several smaller firms. As these issues bite, such companies face the prospect of entering administration, making them prime targets for distressed acquisitions.
In March 2022, Scottish seafood firm Dawnfresh Farming was put up for sale by administrators following the collapse of parent company Dawnfresh Seafoods and RR Spink and Sons. The administration came after the business succumbed to rising costs and cashflow issues, despite significant investments in its plant and systems as part of an effort to improve efficiency and cut costs.
The company, founded in 1973, provided fish processing and supply services for clients in retail, wholesale, food service and the export market. It operated seven farms across Northern Ireland and Scotland, in addition to its production and processing sites at Arbroath and Uddingston, the latter of which had become loss-making.
Joint administrator Callum Carmichael of FRP Advisory said: “Dawnfresh is a high profile and highly regarded seafood business with a long tradition of supplying innovative products to a blue-chip customer base. Unfortunately, the business has been unable to overcome very serious financial problems at the Uddingston facility”.
Having secured a prompt sale of the Arbroath facility, the joint administrators were subsequently also able to secure the sale of the Uddingston site to Thistle Seafoods, which said it would develop it into an advanced, value-added seafood processing and distribution centre serving the UK and EU markets.
With inflation and post-Brexit problems remaining persistent issues for businesses in the UK seafood sector, the indications are that distress will continue to increase, potentially pushing a significant number of firms into insolvency and generating a strong degree of distressed dealmaking.
As this mounts, some more resilient operators have begun factoring distressed deals into their wider acquisition strategies, as they look to pick up companies, assets or business from firms struggling with rising costs and other issues.
UK-based Ocean Holdings South West has been active in the seafood M&A landscape for several years now, targeting deals that expand its offering, improve its supply chain and sourcing capabilities or provide greater value in its retail and export channels.
Recently, the company confirmed that it would increasingly start targeting acquisitions of distressed UK businesses, with the company’s managing director Leigh Genge forecasting that the sector would become increasingly squeezed by inflation.
Speaking to Undercurrent News, Genge said: "We're going to get more companies falling into difficulty and finding the only way out is through sales. So we are prepped with the funders to strike when the opportunities arise."
Genge added that the company’s economies of scale had enabled it to come to terms with higher costs and more cumbersome trading post-Brexit. Smaller firms may not prove quite so resilient to these challenges, however, and Genge stated: "We've picked up some small volumes as other companies have fallen by the wayside, deciding not to bother shipping just a pallet or two to the EU, and hopefully we can continue to pick that business up."
Exodus from Russia
One of the major developments in the seafood sector this year has been the Russian invasion of Ukraine, something that has brought pressure (from both consumers and clients) on many companies to dispose of their operations in Russia.
This has included Danish seafood processing firm Espersen seeking to exit its Russian business after its main customer McDonald’s pulled out of the country post-invasion. Lithuanian surimi and seafood processing company Viciunai Group sought to do the same after reportedly coming under intense scrutiny in its domestic market.
As Russia continues to double down on its invasion and the seafood industry, more broadly, becomes increasingly concerned with issues of ethics and sustainability, the likelihood is that the war will continue to drive an ongoing stream of disposals.
Widening buyer pool
Obviously, a huge amount of the M&A activity in the seafood sector is being driven by existing industry players, with seafood companies using dealmaking to react to trends and shifts such as new technology, sustainability, the need to scale up and mounting distress. However, arguably the main factor driving the recent surge in deals has been the influx of new buyers entering the sector.
Perhaps the defining trend in M&A post-COVID-19 has been activity driven by private equity firms that had accrued significant amounts of capital after pausing their dealmaking during the pandemic. The seafood industry has been no different, with 43 per cent of all buyouts, mergers, investments and capital raises across the entire sector in 2021 coming from private equity firms or investment funds.
Several private equity firms have moved into the seafood space over the past two years, including Spanish firm PAI Partners, which acquired three companies through its new dedicated seafood platform Angulas Aguinaga last year, and US outfit ACON Investments. This trend has also seen the emergence of several firms focused exclusively on the seafood and aquaculture industries, such as Bluefront Equity.
Along with private equity firms and investment funds taking a growing interest in the seafood sector, there have also been signs that broader food sector businesses are increasingly taking notice of the seafood industry and seeking to expand into it.
Last year, Brazilian meat processing giant JBS moved into the seafood space for the first time with its acquisition of Australian salmon producer Huon Aquaculture in a deal that valued the Tasmania-headquartered firm at around £230 million.
Commenting on the deal, JBS Global CEO Gilberto Tomazoni said: “This is a strategic acquisition, which marks the entry of JBS into the aquaculture business. We will repeat what we did previously with poultry, pork, and value-added products – to make our portfolio even more complete. Aquaculture will be a new growth platform for our businesses.”
After seafood M&A reached new heights last year, dealmaking in 2022 is on course to go even further and comfortably surpass 2021 in both volume and value. Furthermore, with disruptive new technologies emerging rapidly across the sector, companies using M&A to respond to challenges such as supply chain issues and mounting distress impacting small and medium-sized firms, dealmaking could be set to accelerate even further over the coming months and well into next year.
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