Post-COVID recovery could see spate of seafood company mergers and acquisitions
When the world begins to recover from the COVID-19 pandemic, some prominent seafood executives are predicting a busy period of mergers and acquisitions.
Speaking during the National Fisheries Institute's 2021 Global Seafood Market Conference’s economic outlook panel, seafood company advisors and CEOs said they expect a combination of factors will lead to increased M&A activity. As companies begin to see a turnaround from the COVID-19-related economic downturn, access to cheap financing could spur companies to look for new opportunities, according to Antarctica Advisors LLC Managing Partner Ignacio Kleiman.
“Money is extremely cheap. Some players see it as an opportunity to grow and consolidate,” Kleiman said. Historically low interest rates, coupled with government-promised support for the industry, will likely spur on M&A activity, he predicted.
“When money is that cheap by historical standards – and you know with so much quantitative easing, it’s going to last for a while – those with a strategic vision can take advantage of that,” Kleiman said. Those factors, he said, point to increase activity.
“There are many forces that point toward more M&A, not less," he said.
Part of that prediction stems from the way COVID-19 disrupted commerce – and not just in seafood. Some companies have weathered the pandemic easier than others, and companies that already had issues saw them compounded, Clearwater CEO Ian Smith said
“If you were a marginal operator in your sector, then COVID just blew you up, in terms of exposing all the weaknesses that you have in your operating model,” Smith said. “Regardless of the seafood sector, and I think it’s more broadly applicable to companies in general: If you were a good operator in your sector, COVID may have slowed you down, but you actually have a chance to emerge even stronger than you were before.”
Smith also predicted M&A activity will increase once companies begin to see the other side of the COVID-19 pandemic.
“That’s part of the reason why I think consolidation is going to continue and in fact strengthen as we move forward,” he said, referring to the economic impacts of the COVID-19 pandemic.
Cooke Aquaculture CEO Glenn Cooke said he has seen increased interest from outside investment companies in the world of seafood.
“A lot of people that were not very active in the seafood world are jumping in,” Cooke said.
Smith said he’s also seen similar activity.
“You do not just have the strategic buyers, you have the finance industry as well,” Smith said. “There’s more eyes on this space than there was before, largely because it doesn’t have the consolidation levels that you have in the other proteins.”
Seafood, Smith said, is a relatively fragmented industry compared to the larger protein sectors like chicken and beef. With so many players in the game, interested investment companies have more opportunities to acquire something within the space.
However, Smith said that fragmentation is a double-edged sword – seafood isn’t an easy industry to capitalize on.
“On the other hand, it’s seafood. It’s not chicken, beef, and pork, it’s seafood – which you need to have knowledge and experienced people doing this,” he said.
Compared to chicken or beef, which have relatively straightforward supply chains, seafood has to contend with supply and regulatory constraints. Those constraints differ from country to country, and navigating those complicated international regulations is a necessity for certain species. Plus, even access to the raw materials needed is a more difficult challenge, Smith said.
“You can’t just go buy access to the raw materials in most of the countries,” he said. “Having a big bag of money is helpful, but if you don’t have knowledge or experience behind what you’re doing, you’re going to get burned.”
For that reason, Kleiman predicted the majority of the benefit will go to companies with an established presence in the industry.
“The universe gets reduced by 95 percent just because of the complexity,” he said. “The universe of actual investors, it’s smaller than what it looks like.”
As a result, Kleiman said he expects some seafood companies will adopt an aggressive M&A strategy post-COVID-19.
“You have pent-up demand, you have companies that have not suffered that much, and you have tremendous availability to very cheap capital for the foreseeable future,” he said. “If you know how to drink it, that’s a very tasty cocktail.”
Photo courtesy of Antarctica Advisors