Iberconsa was never likely to attract Asian investment, advisors say

Despite completing deals to expand their supply lines in Northern Europe and North America, major Asian trading giants such as Maruha Nichiro or Nippon Suisan Kaisha are unlikely to take any interest — at least for the immediate future — in buying wild catch enterprises in Spain and Latin America, top financial advisors told Undercurrent News.

Speaking on Undercurrent’s “What COVID-19 Means for Seafood M&A” webinar on June 4, Jose Antonio Zarzalejos — a partner with banking house “It’s not a coincidence that Nomura had the sales side mandate for Iberconsa. They were very clear they wanted to attract interest from Asian buyers, but that didn’t happen.”

Ignacio Kleiman, managing partner at the boutique seafood advisory firm Antarctica Advisors, echoed Zarzalejos’ thoughts on the Iberconsa sale.

“The issues that you have with Asian buyers in many cases are due to scale and often a lack of management capability,” he told Undercurrent. “Even though they are good traders and they purchase products from around the world, they do not [usually] have the management capability expertise for cross-border [deals], to go and take over a major fishing operation overseas.”

Kleiman pointed to last year’s acquisition of Chilean salmon farmer Australis Seafoods by the Chinese technology and investment giant Legend Holdings as a one-off case that hasn’t paid dividends as yet. “The case of Australis in Chile is struggling there.”

“They haven’t really seen a major player taking over a fishing operation in Latin America recently; quite the opposite. If you remember a few years ago, many of the Japanese houses actually exited.”

“So I think on that note the strategy for Iberconsa’s sale, trying to target the Asian houses probably wasn’t strong from the beginning,” he added. “Also, the Asian market does not demand hake, so I leave a question mark there.”

Nevertheless, Maruha Nichiro is still clearly intent on expanding its downstream presence in the country, as it acquired a 33% stake in wholesaler Inlet Sea sh last year via Dutch subsidiary Seafood Connection. Likely business as usual for PEs despite pandemic Unlike many other sectors, the business case for investing in the seafood industry will likely remain largely unaffected despite the pandemic, according to both Zarzalejos and Allan Leung, director of seafood business development advisory Mount Vantage.

Over the past few years, Spain has seen a resurgence of interest in its highly fragmented seafood sector from big regional private equity houses, Zarzalejos said, pointing to Alantra Partners’ acquisition of Union Martin in April 2018, or GED Capital’s purchase of a 71% stake in octopus processor Discefa in June 2016 as cases in point.

“So all of a sudden, we’ve seen renewed interest in the industry, but I tend to agree with what Matthijs [Dekker] was saying, which is that this is a complex industry with a high degree of volatility when it comes to prices, and not necessarily a sector which is easy to  nance from a lender’s perspective.”

“Having said that, we see that interest from private equity coming in the recent past, but the question is, will we see this happening in the short-to-medium term?” Zarzalejos added. “This is an industry that should be resilient, people need to eat, but volatility around raw material pricing is I’d say the number one element that to a certain extent deters a bit of that interest from the private equity industry.”

From an Asian perspective, Leung agreed, noting that if anything the pandemic had seen a boom in seafood e-commerce that held the potential to attract more investment into the sector than before.

“Many people I have spoken to have said the pandemic is a transient matter, it will not change the long-term view in Asia,” Leung told Undercurrent. “Private equity loves sticky customers, and with or without pandemics, people are going to eat seafood. So that’s very attractive to investors who are looking for that kind of cash flow stability.”

On the other hand, the volatility of export prices, combined with several governance issues has made attracting investment a challenge.

“If you were trying to IPO something with a lot of biological assets, it can be challenging in this part of the world,” Leung said. “Having said that, strategic MPEs express interest with a number of ongoing seafood deals. The difference with these two is that the strategics are looking for businesses in areas with a lower geopolitical risk, whereas the private equities are looking for a middle-class consumer story.”

“So I would foresee that a lot of investments are still coming into this part of the world, but the difference here is that western or PE investors have an increased appetite in South-East Asia; investors out of China whether they are strategics or PEs are seeking a different kind of capital offshore.”

“In the meantime, everyone is looking at agritech investments, and that includes the seafood sector as well,” he added.

The full seafood webinar can be viewed by clicking here, or by watching below.

PricewaterhouseCoopers’ Spanish branch — said that where major Asian players were concerned, “scale is everything”.

“The reality is that when it comes to specific sectors or species like hake or shrimp, which are the ones Pescanova and Iberconsa are strong in, scale is everything to attract interest,” he said. “And I mean scale that’s north of €100 million of EBITDA [earnings before interest, taxes, depreciation and amortization].”

When you reach that point, Zarzalejos said, a financial consolidator trying to part ways with a fishing company effectively has three options open to it: open an initial public offering on a regional stock market, sell to a fellow trade player, or perform a second buyout to another, larger private equity house.

Such was the case in June 2019, when Portobello Capital sold its 55% stake in Grupo Iberica de Congelados (Iberconsa) — Spain’s second-largest fishing company, behind Grupo Nueva Pescanova — for over €500 million ($556m) to US private equity house Platinum Equity after a lengthy sales process begun more than a year prior.

“One of the things that’s been an issue in selling a business for specific species — I’m not talking about other species, for example tuna or even octopus, where scale is not that relevant — when it comes to global species such as shrimp or hake, scale is everything, so you want to have several exit options,” Zarzalejos said. “And I think one of the things Portobello struggled with is building a business above €100m EBITDA [earnings before interest, taxes, depreciation and amortization] to really attract players from regions such as Asia.”

Iberconsa’s EBITDA for 2018, when its sales process began, came to €70m according to El Economista, meaning the deal was done at a multiple of between 7.1-7.8 EBITDA.

Image: Iberconsa’s stand at Conxemar 2018. Credit: Undercurrent News