Global seafood deals driven by retail consolidation, efforts to diversify - analysis04 June 2008

The seafood industry is consolidating across the globe, as retailers consolidate and the numbers of customers diminish. More vertical integration between upstream and downstream players is expected, as well as diversification into value-added products like Omega-3 fatty acids, industry sources said.
In the latest announcement, Canada-based shellfish producer Clearwater Seafoods Income Fund said it would explore strategic alternatives, and reports suggest it is likely to go private. That decision was prompted by challenges attributed to exchange fluctuations, a weak scallop market as well as a volatile cash flow stream that did not suit the income trust structure.
A US-based industry source said the overall consolidation is due to a combination of factors, including the influence of Glitnir, an Icelandic bank prominent in the seafood industry. The retail sector to which these companies sell seafood has also rolled up, and that has resulted in fewer customers like Wal-Mart, that want to reduce their number of suppliers.
European seafood analysts noted that while retailers want fewer suppliers, they also prefer suppliers that have a wide portfolio of species, which is another driver for M&A. One said he expects further consolidation across the value chain, particularly in the fragmented sea bass and sea bream markets, as well as more vertical integration between upstream and downstream players. The analyst added that it is more expedient for a large player to extend into a new product category through an acquisition, rather than through organic growth.
Among other factors contributing to consolidation is the increased consumption of seafood due to the known health benefits, combined with a limited supply. "We’ve reached the cap of how much the ocean can produce," the US-based industry source said.
Active consolidators have included China-based Pacific Andes, Norway-based Marine Harvest, and Japan-based companies Maruha and Mitsui.
A spokesperson for Pacific Andes acknowledged the current trend toward consolidation, and said the company is always looking for acquisitions. Most of its fish are from the Pacific Ocean, but the company is unlikely to acquire companies in the US, Canada and Europe because they are too expensive. It will more likely look for businesses in South America or Asia, the spokesperson said. By consolidating other fishing companies, the company is able to increase its market share of specific quotas. Pacific Andes has more than USD 1bn in market capitalization.
In the US, other Asian players have established a large presence, including Maruha, which owns Seattle-based Peter Pan, and Mitsui. Thailand-based Thai Union Frozen Products owns the US tuna brand, Chicken of the Sea.
Additional large privately held seafood suppliers in the US include Red Chamber Group, based in California, and Pacific Seafood Group, based in Oregon. Both are reported to have more than USD 700m in revenues.
Meanwhile, Norway-based Marine Harvest is largely responsible for farm salmon M&A activity in Norway and Chile, the US-based industry source said. "They have forced a wave of consolidation," he said.
The Norwegian government intends to cap market share on any one player to 25%, one European analyst said, a ceiling that Marine Harvest has already reached in the salmon segment. This will likely prompt Marine Harvest to diversify into new products. Cermaq ASA, another Norwegian player, will continue to consolidate its position in the salmon market, the analyst added.
Nireus, the listed Greek fish farming and fish processing company, is another consolidator, one analyst pointed out.
Other areas of consolidation could include the cod industry, as stocks for wild fishing companies are falling, and the demand for more farming efforts is increasing. The value-added segment, for example companies that deal with Omega-3, is also growing, the analyst noted.
Meanwhile, private equity interest in seafood, which had been seen in Europe with CapVest Limited’s investment in Young’s Bluecrest in March 2002, has started to appear in the US. Private equity firm Fox Paine recently acquired Seattle-based Icicle Seafoods, and is expected to use Icicle as a platform for further acquisitions.
An industry banker noted that Trident Seafoods, an Alaskan salmon and crab provider majority-owned by Chuck Bundrant, has similarities to Icicle Seafoods. Asked if Fox Paine could also target Trident, the banker said Bundrant would not be keen on a sale to the PE firm. Bundrant is also near retirement age, but the banker said Trident’s succession plans are unknown.
Trident Seafoods had planned to merge with Ocean Beauty Seafoods in 2006, but the deal was called off. Ocean Beauty ended up selling a 50% stake to an Alaskan community development firm.
Historically, there has been comparatively little private equity activity in seafood because fish farming is a cyclical business, and PE firms look for stable cash flows, one European analyst said. However, private equity is interested in the value-added industry.
Seamus FitzPatrick, a founding partner of CapVest, said in a published report that the seafood industry is fast growing, immature and remains very fragmented. This will allow private equity an opportunity to consolidate and develop new products and branding opportunities.

by Heather West in New York, Kasper Viio in London and Maggie Ma in Hong Kong

Back to Editorial