Deal interview: Sea Harvest's Muhammad Brey
Muhammad, Sea Harvest's chief investment officer, discusses the company's acquisition of Australia's Mareterram.
South Africa's Sea Harvest announced on Tuesday that it has made a cash offer to buy all the shares it does not already own in Mareterram, the Western Australian shrimp fishing and seafood distribution firm.
Sea Harvest, the JSE-listed listed fishing enterprise controlled by investment firm Brimstone Investment Corporation, already owns a 56.3 percent stake in Mareterram, which is listed on the Australian Securities Exchange.
Sea Harvest is offering A$0.25 for each Mareterram share, which represents a 31 percent premium on Mareterram’s 30-day average share price. Sea Harvest’s offer values the issued capital of Mareterram at about A$38.6-million and the acquisition price for the proposed offer is A$16.9-million (about R163-million).
Muhammad Brey (pictured), Sea Harvest’s chief investment officer, spoke to Mergers and Acquisitions (M&A) Africa about the deal.
M&A Africa: Why go the route of making Mareterram a wholly-owned subsidiary?
Muhammad Brey: We have a long history with Mareterram. We acquired a 19.9 percent share in the Mareterram in January 2016, which was increased to the current 56.3 percent in July 2016, in line with Sea Harvest’s organic and acquisitive growth strategy. Mareterram is a small company with a A$40 million market capitalisation.
One of the reasons behind acquiring the entire shareholding of the Mareterram would be to delist the company and remove some of the duplicated listing costs as Sea Harvest is also listed.
Most importantly, the deal allows us to fully extract operational synergies between Sea Harvest and Mareterram. Mareterram’s strategy is quite complimentary to ours and it is a well-managed and vertically integrated company. For example, Mareterram sells some of our products to the Australian market.
M&A Africa: How will delisting help Mareterram integrate within Sea Harvest?
Muhammad: The focus will be on working capital. At the moment, Mareterram is listed and has outside shareholders. When a company is wholly owned, you can manage working capital. We can now take advantage of opportunities easily compared with when a company is listed. Being delisted will allows us to work more closely with management. From a funding of growth perspective, it is now much easier for Mareterram to raise funding for both organic and acquisitive growth as we now have one shareholder. Previously, Mareterram had to go to the banks and equity capital markets for funding. For such as a small company, it is quite costly to go to shareholders to raise funding and pay advisors.
M&A Africa: Is the Australian market key for Sea Harvest?
Muhammad: We do see it as a growth area. The licensing regime in Australia is different to South Africa. In South Africa, we get fishing rights for 15 years whereas in Australia, fishing rights are given in perpetuity. Once you have acquired the rights in Australia, you can hold them for life. That makes the Australian market attractive and it allows you to invest in fishing operations for a very long period.
M&A Africa: Does the deal give Sea Harvest more impetus to expand in the Australian market?
Muhammad: We are already looking for opportunities in Australia. But valuations of assets have been a challenge. We are not willing to overpay for assets. We will pay up for a good asset, but we are not willing to overpay. We will look to the management of Mareterram in helping us to look for more opportunities in the Australian market.
M&A Africa: How does Sea Harvest ensure that it doesn’t overpay for assets when looking for opportunities in Australia?
Muhammad: We have our investment parameters set up by the board. At the end of the day we need to make a return for our shareholders, and we need to create value for shareholders. We would rather be cautious about acquisitions than overpay.
M&A Africa: Are you concerned by how difficult the Australian market is considering that fishing catch volume rates are down and that Mareterram recently saw its profits decline by 78 percent for the 12 months ended December 31, 2018?
Muhammad: When you get into the fishing industry, you take a long-term view. We know that we are also dealing with nature and sometimes fishing catch rates decline, are volatile and unpredictable. History shows that Mareterram’s fishing catch rates normally rebound after a poor period.
We believe that Australia’s fishing industry is well-managed and regulated by the Department of Fisheries. All of this means that we need to have the right management plan in place and this will ensure that Mareterram’s business is sustainable.
M&A Africa: Is Sea Harvest acquisitive in South Africa?
Muhammad: We recently concluded two big transaction in South Africa when we bought Viking Fishing Holdings and Viking Aquaculture [fishing businesses]. Our focus in South Africa at the moment would be to integrate those businesses. For Sea Harvest, 2019 will be a year of consolidation in South Africa to make sure that we create the value in the businesses we have bought.
We have also diversified by buying a company called Ladismith Cheese Company [ a value-adding dairy processing company]. Once we have integrated these three transactions, then we will be able to look at acquisitive growth.
We are under no pressure from our shareholders to grow and conclude deals for the sake of growing. We will go through a rigorous due diligence process and sticking to our investment criteria that includes looking at the financial metrics, regulatory issues, security of tenure and backing the right asset class that can generate long-term cash flows.