Bakkafrost on Wednesday announced it acquired 68.6 percent of The Scottish Salmon Company (SSC) from Northern Link Ltd., the Faroese company's first salmon farming acquisition outside of its home country.
The deal, for NOK 28.25 per share, puts the overall acquisition price, when completed, at £517 million (€471 million/$517 million), and values the UK firm at €582.8 million ($638 million).
Bakkafrost will fund the acquisition and subsequent mandatory tender offer through a mix of debt and equity, including an accelerated share offering of roughly 15 percent of share capital and a 5 percent share capital issue of Bakkafrost shares to Northern Link.
Bakkafrost has fully committed acquisition financing in place to secure funding of the transaction, the company said.
Deal rationale: Premium salmon, diversification
The acquisition gives Bakkafrost access to premium-priced Scottish-origin products, CEO Regin Jacobsen noted, a suite of well-known brands and an immediate strong presence in the UK, where SSC is the second-largest salmon farmer and one of the largest suppliers to the UK market.
SSC, headquartered in Edinburgh, Scotland, has operations on the west coast of Scotland and the Hebrides. It had a harvest of 29,913 metric tons in 2018, an 18,463 metric-ton harvest in the first half of 2019, and has total harvest capacity of 50,000 metric tons. The company generated earnings before interest, taxation, depreciation and amortization (EBITDA) of £56.7 million ($70 million/€64 million) in 2018 and £35.7 million ($44.1 million/€50.3 million) in H1-2019.
The deal also allows Bakkafrost diversification of its pure-play Faroe Islands operations. Bakkafrost said its expects to provide material improvement in SSC's profitability over the next five years through synergies, a transfer of best practices and a targeted investment program.
The company foresees synergies in three key areas: feed and procurement; sales cooperation; and selling and administrative and overhead savings.
Bakkafrost produces fish feed with a significantly higher marine index compared to industry feed, the company said. Supplying feed to SSC would result in fixed cost efficiency at Bakkafrost feed facilities through inter-company sales of higher quality feed to SSC. Net synergy is estimated at DKK 1.2 ($0.17/€0.16) per kilogram of feed, equating to annual synergies of approximately DKK 70 million ($10.2 million/€9.3 million) from 2022 onwards.
Both SSC and Bakkafrost market premium salmon and brands that obtain a significantly higher price due to provenance and product differentiation. Both companies plan to drive efficiencies by coordinating sales efforts going forward taking advantage of relative distribution strengths in global markets.
Bakkafrost also believes that there is the potential for transfer of best practices such as cost performance, site consolidation and expertise in biologic threats to SSC operations. including
It also plans to make targeted investments in a new modern recirculation plant for smolt production replacing SSC's large number of small smolt facilities. Additionally, investments are planned to be directed towards replacing SSC's existing seawater equipment.
DNB, Goldman Sachs International and Nordea acted as joint financial advisors to Bakkafrost. Daiwa Corporate Advisory Limited acted as financial advisor to SSC.