Can Aquaculture Find the Capital to Double in a …P+P’Food’and’Agribusiness’...
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Can Aquaculture Find the Capital to Double in a Decade?: The Private Equity View – Invested in the Space Mitchell Presser
Transcript of Can Aquaculture Find the Capital to Double in a …P+P’Food’and’Agribusiness’...
Can Aquaculture Find the Capital to Double in a
Decade?: The Private Equity View – Invested in the Space
Mitchell Presser
Overview of Paine & Partners
Paine & Partners
Paine & Partners is a private equity firm that focuses on inves8ng in food and agribusiness situa8ons where addressing complexity and developing crea8ve solu8ons for sellers creates value through management buyouts, going private transac8ons, and company expansion and
growth programs
23 Investment and Opera8ng Professionals
$1.2 Billion Fund III
Offices in Chicago, New York, and San Mateo
Seeing Opportuni-es Where Others Do Not
P+P’s Seafood Investment Thesis
P+P Food and Agribusiness Investment Themes
Increasing demand for protein driven by popula8on growth and improving diets
Drama8c produc8vity increases required to meet demand, given constrained resources
Con8nued focus in developed markets on health and wellness, func8onality and
convenience
Iden8fica8on of Key Themes to Deploy Capital
Increased emphasis on sustainability and other environmental factors
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5
10
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Annu
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sumption Pe
r Capita
Bovine Pig Poultry Fish
1997/992030E
P+P Seafood Investment Thesis • World food demand is forecasted to increase by 70% from 2000 to 2050, with
protein demand increasing by 100% • Strong correlaAon between the increase in calorie intake that is seen in more
developed markets and the increase in protein consumpAon Global Growth in Protein Consump8on Per Capita
Sources: FAO and McKinsey.
+3%
Daily Calorie Intake vs. Protein Consump8on
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1,800 2,300 2,800 3,300 3,800
Daily Protein Con
sump8
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Daily Calorie Intake
Sudan
Kenya India Sri Lanka
Ghana
Brazil China
ArgenAna
Australia Netherlands
Spain
UK Canada
Germany
Portugal France
Italy
Greece
USA
1.21.7
2.6
3.5
7.5
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Salmon Tilapia Chicken Pork Beef
P+P Seafood Investment Thesis • Growth in demand for seafood is driven, in part, by the increased recogniAon of the
health benefits compared to other animal proteins • In addiAon, the feed conversion raAos for farmed seafood species are significantly
beYer than for terrestrial proteins Feedstock Requirements for Produc8on (2) Health Benefits of Seafood (1)
(1) Source: NutriAonal ComposiAon of red meat, 2007, University of Wollongong. 1=Whitefish; 2=Oily fish. (2) Source: P+P esAmates. Represents pounds of feed needed to produce one pound of meat.
* FaYy acid profile of raw lean meats (g/100) edible porAon)
P+P Seafood Investment Thesis • Seafood accounts for 15.7% of the global intake of animal protein • From 2000-‐2020 producAon is projected to increase by 30% and per capita
consumpAon is forecasted to increase from 15.7kg to 18.0kg • Growth coming from: (i) rising living standards; (ii) emphasis on fish as a healthy
protein; (iii) rapid urbanizaAon; (iv) increased trade; and (v) populaAon growth Global Fish U8liza8on and Consump8on Projec8ons
Source: FAO.
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2000 2005 2010 2015 2020
Per C
apita
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in M
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Human Consump8on
Non-‐food Uses
Per Capita Consump8on
P+P Seafood Investment Thesis • Due to stagnant wild catch volumes and the increasing depleAon of global fisheries,
there is a need for aquaculture to meet global demand • By 2020, aquaculture is forecasted to represent greater than 50% of the seafood
producAon for human consumpAon Deple8on of Marine Fishery Resources Produc8on – Aquaculture vs. Capture
Source: FAO.
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10%
20%
30%
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50%
60%
70%
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90%
100%
1990 2000 2010 2020
AquacultureCapture
10%
51%
39%
32%
53%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1974 2008
Under/ModeratelyExploited
Fully Exploited
OverExploited/Depleted/Recovering
Successful Private Equity Inves8ng in Aquaculture
Successful Private Equity Inves8ng in Aquaculture • In order to be successful invesAng in the sector, private equity investors must have an investment thesis and execuAon plan to: – Capitalize on the significant opportuniAes available
– MiAgate the risks inherent in the industry
Opportuni8es / Challenges Inves8ng in Aquaculture
• Instability of global supply/prices • Increasing cost of feed due to
fishmeal/oil demand • Focus on sustainability metrics
from retailers and consumers • Mortality rates ohen difficult to
control due to weather/ disease/predaAon
• Overall environmental concerns • Significant capital investment
required
Opportuni8es Challenges
• Significant growth potenAal given increasing global demand and stagnant wild capture producAon
• BeYer geneAcs to improve growth and mortality
• More stringent biosecurity and quality control regulaAons
• Improved farming technologies
• More cost effecAve and efficient feed ingredients and diets
Mi8ga8ng Challenges Challenges Ways to Mi8gate
Instability of Global Prices
• Focus on markets where producAon is valued, rather than viewed as a pure commodity • Lower producAon costs to remain profitable despite price volaAlity • Pursue prudent, profitable growth
Increasing Feed Costs
• Refine diets for each season in order to minimize required use of fishmeal/oil while sAll achieving desired growth
• Work with feed companies to idenAfy and incorporate alternaAve sources of protein
Sustainability • Reduce fishmeal/oil component of diets
• Source fishmeal/oil from by-‐products rather than fish caught for crushing
Mortality • Minimize predaAon risk by protecAng cages with nets, etc.
• Improve biosecurity pracAces and have appropriate density levels to minimize disease
Environmental Concerns
• Minimize waste that is deposited back into water
• Reduce use of copper and other metals on cages by transiAoning to alternaAves
• Refine diets and uAlize supplements to improve health and minimize waste
Capital Investment Required
• Creates significant barriers to entry for new parAcipants
• Generates strong EBITDA margins
Related Opportuni8es in Aquaculture • InvesAng in businesses that support the aquaculture industry is
another way to parAcipate in industry growth without taking on many of the associated risks
• Examples of specific categories that may be aYracAve include: – Feed – Feed ingredients and supplements – GeneAcs – Farming equipment (e.g., nets, feeding systems and well boats)
• A good example of such a transacAon is P+P’s investment in Scanbio Marine, which offers a sustainable source of fish-‐based protein ingredients
Comparison of Capital Sources
Available Sources of Capital
The “Right” Source Depends on the Company’s Profile and Strategic Objec8ves
• An important part of miAgaAng the risks in any business is having the capital structure to withstand volaAlity and grow through challenges
• Capital structure flexibility also creates opportuniAes to potenAally acquire compeAtors during difficult periods and take advantage of unique opportuniAes to expand
• There are five primary sources of capital for a company to consider: – Debt: Bank Debt, High Yield Bonds, Private / Mezzanine Debt – Equity: Public Equity, Private Equity
Debt Capital Sources Sources Advantages Disadvantages Bank Debt • Generally lowest cost source of capital
• Prepayment flexibility
• RelaAonship banks understand the business and are willing to work through difficult situaAons
• Lenders concerned with preservaAon of capital; not aligned with shareholders for long-‐term value creaAon
• Most restricAve financial covenants
• Shorter term capital
• More conservaAve leverage profile
High Yield Bonds
• Longer-‐term capital than bank debt
• Fewer financial covenants and typically only incurrence-‐based, rather than maintenance
• Access to liquidity if company performance and market are strong
• Provides maximum leverage
• Not aligned with shareholders for long-‐term value
• Significantly higher cost than bank debt
• Access to liquidity dependent on market Aming
• Minimum issuance size requirements
• Significant breakage costs
• Higher transacAon costs
Private / Mezzanine Debt
• Typically for smaller companies and/or companies with higher leverage
• Less restricAve covenants than bank debt
• Most expensive form of debt, with returns similar or higher than public equiAes
• Higher fees and breakage costs than bank debt
Equity Capital Sources Sources Advantages Disadvantages Public Equity
• Cheaper cost than private equity, which results in less diluAon to exisAng shareholders
• Access to liquidity if company performance and market are strong
• Less shareholder involvement in decision making and governance
• Need to manage for quarterly earnings rather than for long-‐term value creaAon
• Access to liquidity dependent on market Aming and Company performance
• Cost and Ame of regulatory compliance can be significant, parAcularly for middle-‐market businesses
• Subject to takeover risk from unwanted parAes
Private Equity
• Facilitates alignment of incenAves between management and shareholders
• Focus on long-‐term value creaAon
• Partnership with knowledgeable investor to help focus and execute strategy and accelerate growth ― Complementary skill set to management and experAse
in execuAng add-‐on acquisiAons to create value
• Access to liquidity not dependent on market
• Most expensive form of capital
• Greater involvement from investors
• ExisAng shareholders and management team need to accept and value having a strategic and financial partner
Private Equity is an Airac8ve Source of Capital for Companies Who Want a Partner to Assist with Long-‐Term Value Crea8on
P+P Investment Case Studies
Icicle Seafoods Investment Thesis
• Diversified supply and product offering provides earnings stability – Product mix from mulAple species and sub-‐species
– ProducAon base spread across mulAple fisheries in Alaska and the Pacific Northwest, as well as Chile
• PosiAve demand dynamics and industry trends – Increased customer demand globally for healthier sources of protein
• Experienced management team with excellent track record
• Opportunity to further consolidate sector given diversified plarorm, management experAse and access to growth capital
• Significant asset coverage through vessel fleet, producAon assets, quota and working capital
Icicle Seafoods, Inc. is one of the largest and most diversified seafood companies in North America. Icicle’s core business is the producAon, harvesAng and primary processing of wild and farmed seafood.
Icicle Aquaculture Opera8ons
• Established in 2006, as a 50 / 50 joint venture between Icicle and a Chilean entrepreneur
• Key products include coho salmon and trout, primarily H&G format
• 2011 / 2012 producAon of ~13,000 tons of coho and trout, mostly sold in Japan
American Gold Seafoods Salmones Aysen
• Largest farmed salmon operaAon in U.S. – ~7,000 tons of producAon – 120 pens operated at eight farms located
throughout Puget Sound – Majority of producAon converted into
value-‐added fillets • Key compeAAve advantages
– No transportaAon costs to U.S. market and no FX risk
– Ability to leverage Icicle sales and markeAng infrastructure
– Owns in-‐house hatchery for egg / smolt producAon
• An important part of our growth and diversificaAon thesis at Icicle is expanding aquaculture operaAons, which we have done through the acquisiAon of American Gold Seafoods and expansion of our Chilean JV (Salmones Aysen)
Scanbio Marine Investment Thesis
• In line with P+P focus on protein inputs and supply chain sustainability
• Strong macro demand for sustainable fish oil and fish-‐based protein ingredients
• Well invested with defensible compeAAve posiAon
Scanbio Marine is a leading Norwegian producer of fish protein concentrate, fish meal, and fish oil from white fish and salmon by-‐product silage and fresh fish. Products are primarily sold into the European aquaculture fish feed, animal feed, and bio-‐fuel markets.
– One of two Norwegian players with large-‐scale silage processing capabiliAes – Four strategically located producAon plants and four transport vessels
• Healthy raw material supply base to drive volume growth • DifferenAated technology and capabiliAes • Strategic industry asset with many growth and upside
opportuniAes • P+P’s global network and relaAonships in the seafood industry
will help drive internaAonal expansion and add-‐on acquisiAons
Thank You!
