by Onno Musch, Director of International Relations
The full article was published by Undercurrent News: https://www.undercurrentnews.com/2024/11/13/opinion-ras-farms-need-contracts-competence-commodity-case-to-attract-investors/
In recent weeks, we have seen some major new investments into the landbased aquaculture space for salmonids, from players such as Aquaterra, EMK Capital and Mitsubishi Group. This is an interesting development, particularly when we see ‘new’ actors entering the market, giving confidence to a further development of the segment.
The space is developing quickly, and we wanted to gauge how investors look at the recent developments and how the sector is evolving. The key question: how do we attract even more investors to look into this segment and what type of investors should we be looking at? What is important for investors and what should the industry be focusing on to attract capital?
We spoke to our network of investors and asked them some of these central questions;
- Muxin Ma, investment director, and Fuad Yusibov, senior investment manager, at Foresight Group LLP – Invested in Hima Seafood.
- Alexandre van der Wees, founder of investment firm Aquaterra and previously investment director at Creadev – Experience from Kingfish Company, Noray Seafood and AquaPri
- Anna Reindl, director investments, at Schörghuber Group – Invested in Chilean salmon producer, Ventisqueros.
- Other investors that we talked to wanted to remain anonymous and will not be mentioned specifically, but their inputs and answers are covered in this article.
Mega trends and mega markets
How and why did you get involved in the landbased aquaculture space?
The general consensus is that the new land-based sector promises to address two key criteria for investors: mega trends and mega markets.
Land-based systems are particularly attractive as they can propel the industry’s further growth and expansion. Van der Wees believes: “In RAS, if done well, we should be able to control the fish welfare and reduce mortality. By focusing on improving the sustainability of feed sourcing and reducing mortality we can really achieve a more sustainable production of proteins from fish.”
How do you regard the recent development in the segment?
Alexandre van der Wees commented that ‘Where initially project plans were huge, the industry should look to develop plans in steps and smaller modules, allowing for management and staff to gain experience as they grow. This will reduce the risk.’
Competence is king
What are your reflections regarding local competence vs. local customers?
Fuad Yusibov mentioned, ‘for the first land-based aquaculture facility, we need to be where people know what they are doing. Once you get to grips with the operations and risks, you can consider taking steps out to other markets.’
As far as investors are concerned, in a capital-intensive segment with complex risk, competence is king!
What do the various investor profiles see as being most important?
Whereas Private Equity (PE) investors in general can accept a somewhat higher risk profile, they will also require a higher return on investment (ROI). Generally speaking, PE will have a shorter time span to a potential exit (5 – 7 years is common).
PE investors are, therefore, dependent on land-based aquaculture enterprises being realized on time and on budget and excelling in some of the key KPI’s of a farming operation such as fish welfare, product quality, mortality, and production efficiency.
On the other end of the scale, we see infrastructure funds with a significantly longer time frame (up to 30 years is not uncommon) and somewhat lower expected ROI. Infrastructure funds look at the salmon market as a commodity.
For infrastructure funds the key factors are the stability and solidity of agreements and contracts at all levels, from CAPEX to OPEX and to the off-take agreements with end-customers. According to Ma from Foresight, ‘the case needs to make sense from a commodity perspective. This needs to be stressed by the founders, the infrastructure nature of the investment opportunity’.
A key factor for the investment in land-based trout in Norway was ‘access to an established sales apparatus giving confidence regarding off-take for the end-product.’
Patient capital
What type of investor should the industry be looking for?
In the current phase of developments of land-based aquaculture of salmonids, we would argue that the industry requires patient investors, with the ability to stick with the projects for the time required to reach a positive cash flow.
The common consensus from investors seems to be that family offices with clear long-term goals as well as infrastructure funds and industry investors may be the most desirable investor-mix for the space at this time. Some alternative or ‘special purpose’ PE funds with mandates allowing them to investigate new complex markets and hold on to targets for longer than the usual 5 to 7 years may also be potential capital partners for the industry.
How will the land-based aquaculture space develop over the coming years?
As it stands today, many land-based aquaculture enterprises risk falling between two brackets, not quite fitting in the box of PE investors but also lacking the stability and solidity of agreements and contracts at all levels from construction to off-take, making them unattractive for infrastructure funds. That leaves only industry investors and some specific family offices or impact capital, seriously limiting the supply of capital to the market space and the potential for growth. To avoid this, enterprises need to be clear about the profile they represent and communicate the message outward.
From an investor standpoint, the segment is clearly moving in the right direction, gaining credibility and confidence. Driven by mega trends and a growing demand for salmonids around the world, land-based aquaculture is bound to become a significant market with attractive investment potential. Focus on de-risking, quality and stability. Investor interest will follow.