« February 2008 Table of Contents
Processing & Services: Financial services
Mergers and acquisitions fuel industry consolidation
By Lauren Kramer
February 01, 2008
Mergers and acquisitions in North America's seafood sector
have taken a back seat to those in Europe in recent years, but
that's set to change in the future, according to Matt Hill,
director of Seattle-based KeyBanc Capital Markets, a division
of KeyCorp, which provides commercial banking and investment
banking services to middle-market companies.
"There's a lot more discussion that's been going on in the
last five to seven years about
merger and acquisition
activity, with a lot of players considering acquisitions," he
says. "Based on the work we've done and the conversations we've
had in the industry, we'll see a lot more going forward."
The seafood industry constitutes two thirds of business in
the northwest for KeyBanc Capital Markets. The anticipated
increase in consolidation is occurring at a time when many
owners of seafood companies are at a generational stage,
"People are at a point in their ownership where they're
looking for liquidity or transition to the next generation," he
"Many of these owners are at an age where they're thinking
about retirement and succession. That, coupled with a banking
environment where it's easier to leverage up these seafood
companies now than it's been in the past, means there will be
more merger and acquisition activity going forward."
Thanks to the increasing demand and diminishing worldwide
supply of seafood, the basic economics of the industry are more
positive than ever. As a result, the industry's consolidation
activity has been on the rise in the past few years, says
Kristjan Davidsson, a spokesperson for Glitnir.
"There have been a number of mergers and acquisitions in
recent years and we see the trend accelerating, in particular,
vertical integration," he says. "A few recent transactions in
the Americas include Icicle and F.W. Bryce in USA, FPI in
Canada and Copenica in Peru."
Choosing an advisor
For a seafood company considering consolidation, it is
critical they hire an advisor who is knowledgeable in the
industry as opposed to a generalist, says Hill. "There are so
many nuances specific to the industry, and the buyers of these
types of companies have expanded," he explains.
"Equity funds have taken a larger interest in the seafood
industry, so you have to focus on those funds and on strategic
buyers. We'd advise anyone considering a sale or
recapitalization of their company to hire an advisor with
There's one question company owners should ask themselves
before choosing their advisor, says Davidsson: "How important
is it to know and understand what you are doing?"
"Our understanding of the operations and the risks of the
industry, and our extensive global network in the seafood
industry and in the financial markets are reasons people often
mention for contacting us," he says.
When Poseidon Enterprises was looking to sell a stake of its
company to a private equity firm last year, the Charlotte,
N.C.-based seafood processor and distributor hired a boutique
investment banking company in its home city, who assembled a
book outlining the company.
"They took that book to a group of private equity firms and
we were contacted by about 30," says Rich LaVecchia, CEO.
LaVecchia and his team eventually chose to sell a majority
interest of Poseidon Enterprises to Hunt Private Equity in
Dallas, which is part of the Hunt Group of Companies.
It was the first foray into
seafood for Hunt Private
Equity, but LaVecchia was not worried about the
"Hunt buys and sells businesses for a living," he explains.
"They're our partners in the business of growing companies, and
they provide not just capital but market knowledge, business
expertise and legal advice."
Since the partnership with Hunt Private Equity, Poseidon
Enterprises purchased Low Country Lobsters in Charleston, and
aims to make more acquisitions to bring its annual revenue from
its present $95 million to $250 million in the next four to six
"Since that initial transaction we've had 20 companies
approach us to find out if we're interested in acquiring them,"
La Vecchia says. "Some are a good fit, some are not. There's
definitely a logic to what we do."
That logic is an imperative part of acquisitions, he
cautions. "Don't make an acquisition for the sake of making
one. There have to be strategic reasons or significant cost
savings or efficiencies you can derive from it." Likewise, when
searching for a private equity firm, it is essential to ensure
in advance of the partnership that you share the same goals, he
Where's the money?
Owners of privately owned seafood businesses looking to
finance growth have a variety of options. They can approach
their bank for an increased
line of credit, or opt for an
increase of the share capital. "The bank can provide valuable
assistance in that work," says Glit-
"One can search for trade investors that typically bring
more than just the money. They can help with knowledge,
connections, networking and collaboration," he explains. "One
can alternatively look for financial investors, or go public on
the stock market. In all these transactions, Glitnir can
Before you acquire
Prior to making an acquisition, it is essential to examine
the entire value chain, defining your place, goals and vision
within it, cautions Davidsson. "It's important to understand
the dynamics of your segment and the industry," he
"If you are looking to an investment in a resource, you have
to look at the long-term prospects such as sustainability
issues, how it is managed and its future outlook. Often you are
looking at complex issues that can be highly costly to omit or
underestimate, including legal issues, due diligence issues,
financing," he explains.
"A bank with an international network can provide valuable
assistance in most steps of this process: the scanning,
negotiations, execution of the transaction as well as
structuring and arranging of the financing."
Hill agrees. "The problem with hiring a generalist is that
they are learning the industry as they go, and wasting a lot of
time trying to understand the motivations of the parties trying
to come together in a merger or acquisition," he says.
"If we're financing a transaction, we have a better
knowledge of the industry and better visibility of the risks.
And on the advisory side, we're very active in this space,
which means we understand what various parties are trying to
achieve, and as a result, we can make the process
Most seafood companies want to deal with a banker who has
experience in the industry, asserts Tim Antilla, VP with Wells
Fargo's commercial banking division.
"That's because the industry is cyclical, and is subject to
lots of regulations and unusual aspects derived from a resource
that is hunted. You don't find many industries with those kinds
characteristics," he says.
Still, the further you get from the harvesting aspect of the
industry, the less important it becomes to have a grounding in
some of the unique aspects of regulations management.
"A seafood distribution company has many of the same
characteristics as other wholesalers and distributors. But
someone who is a salmon processor in Alaska is a pretty unique
animal," says Antilla.
There are few transactions that occur in the seafood sector
without collateral. Often, in the context of leverage finance
in support of a consolidation, all the assets of the seafood
company, most importantly its fishing rights, are viewed as an
important asset and taken as collateral in support of a
transaction, says Hill.
What is taken as collateral depends on how the loan is
structured, says Scott Etzel, VP of the agricultural industries
group at Wells Fargo. "For long-term loans collateral can be
land, equipment or a building, while for shorter-term loans,
inventory and accounts receivable may constitute collateral,"
Patience is pivotal
The pace of consolidation in the seafood industry over the
next five years will depend largely on what's going on in the
financial markets, says Antilla. "Over the last two years it's
been easier to do transactions that made sense on a financial
rather than a strategic basis because of low interest rates,"
he explains. "With a lot of liquidity in the market people were
able to raise money to acquire companies. But given the recent
financial turmoil and the increase in risk premiums, I think
the financially driven acquisition activity may be harder to
Still, strategic acquisitions will continue to take place
while balance sheets are healthy and the industry as a whole is
profitable, he predicts. "Patience is going to be an important
characteristic of success going forward, waiting for the right
opportunities at the right price."
Contributing Editor Lauren Kramer lives in British