Bakkafrost moves to acquire The Scottish Salmon Company

Months after it confirmed it was considering a sale, The Scottish Salmon Company is being acquired by Bakkafrost, a salmon-farming firm headquartered in the Faroe Islands.

On Wednesday, 25 September, Bakkafrost announced the signing of a binding agreement with Scottish Salmon Company’s majority shareholder, Scottish private equity firm Northern Link, to purchase nearly 69 percent of the Edinburgh, Scotland-based company for an estimated DKK 3 billion (USD 440.3 million, EUR 401.9 million), paying a per-share price of NOK 28.25 (USD 3.12, EUR 2.85). A successful effort by Bakkafrost to purchase a majority stake will trigger a mandatory tender offer for the remaining 31.4 percent stake in the company, at the same NOK 28.25 per-share price.

Shares of The Scottish Salmon Company, which is traded on the Oslo Børs index under the symbol SSC, were listed at NOK 28.10 (USD 3.10, EUR 2.84) at close of business on 25 September. Bakkafrost’s offer values the company in its entirety at around DKK 4.35 billion (USD 638.1 million, EUR 582.9 million). 

“Bakkafrost’s journey has been characterized by delivering industry leading growth and profitability combined with a focus on shareholder value creation. The Scottish Salmon Company represents an attractive acquisition at this juncture providing exposure to the attractive and premium Scottish salmon farming region with potential for synergies and transfer of best practices,” Bakkafrost CEO Regin Jacobsen said in a press release announcing the sale. “The entire Bakkafrost team is looking forward to working with the SSC management team to continue to enhance performance of the business and drive value in the years ahead.”

The Scottish Salmon Company is the second-largest salmon farming firm by harvest volume in Scotland, producing 29,913 metric tons (MT) of salmon in 2018 and 18,463 MT of salmon in the first half of 2019. The company, which owns exclusive genetic rights to grow Native Hebridean Salmon, which it claims is “stronger, leaner, and noticeably firmer” than Atlantic salmon, has a total harvest capacity of 50,000 MT. It reported net operating revenues of GBP 111.8 million (USD 135.1 million, EUR 123.2 million) for the first half of this year, up from GBP 98.3 million (USD 118.3 million, EUR 108.4 million) in the corresponding period of 2018.

Bakkafrost’s purchase price represents a 7.2x multiple of The Scottish Salmon Company’s earnings before interest, tax, depreciation and amortization (EBITDA), according to SSC CEO Craig Anderson.

“The board of SSC considers this offer to be in the best interest of all shareholders as it realizes the material value that has been created after nine successive quarters of growth. The board initiated the independent strategic review in order to assess options to realize value and deliver future growth from the business. The review has been successful in terms of the volume and quality of the companies that have participated in the process, and has resulted in this acquisition to create a major global salmon farming business,” Anderson said in a press release. “I’m proud of the way the SSC team has conducted itself under my tenure, and they have all contributed to building a highly successful business that has ultimately become a compelling investment opportunity for Bakkafrost. The management team will now work closely with the new owners of the business to understand its strategic vision and implications for all SSC stakeholders.”

Under a bullet-pointed list of its strategic rationale for the acquisition, Bakkafrost said the takeover provides it access to the Scottish farming region, “which is a niche farming region with Scottish provenance products priced at a premium to the market.” Acquiring SSC turns Bakkafrost into a “differentiated global leader in premium salmon with dual exposure to both Faroe Islands and Scottish premium salmon,” offering “positive diversification of Bakkafrost’s operations from a pure play Faroe Islands company to a presence in two attractive salmon farming markets while remaining both developed-markets and premium-product focused.”

Bakkafrost also stated it sees “potential for material improvement in The Scottish Salmon Company’s profitability over a five-year horizon through realization of identified synergies, transfer of best practices, and a targeted investment program.” 

It sees potential synergies in three primary areas: feed and procurement, sales cooperation, and selling, general, administrative expenses, and overhead savings. Sharing higher-quality feed at fixed cost efficiency, coordinating sales efforts, slimming management, and sharing best practices – especially in the mitigation of biological threats such as sea lice – is expected to reduce costs and improve profitability, Bakkafrost said. Bakkafrost also plans to make upgrades to SSC’s infrastructure, including a new recirculation plant for smolt production to replace SSC’s collection of smaller smolt facilities, and improvements to SSC’s seawater equipment. 

Bakkafrost plans to fund the acquisition via a mix of debt and equity, including an accelerated bookbuild offering of approximately 15 percent of share capital and a directed share issuance of approximately 5 percent of share capital to Northern Link, according to the company.  Bakkafrost is entering a share-lending agreement with its largest shareholder to “facilitate immediate settlement” of the private placement, it said, and will redeliver any borrowed shares not covered by its current share issue authorization pending approval of its shareholders at an upcoming extraordinary general meeting. Bakkafrost also said it will use an additional debt facility to fund the acquisition of any remaining outstanding shares of The Scottish Salmon Company.

To assist it in fulfilling its obligations, Bakkafrost will sell 85,806 shares of its own stock and will issue 4,800,000 new shares. Bakkafrost CEO Jacobsen has pre-subscribed to the private placement for NOK 50 million (USD 5.5 million, EUR 5.1 million), and other subscribers include Oddvør Jacobsen, Rógvi Jacobsen, and Annika Fredriksberg. The company has placed the minimum order for investment at EUR 100,000 (USD 109,400). The placement is scheduled to run through the morning of 26 September in order to finalize the transaction by 30 September. Additional shares in the private placement may be made available to Bakkafrost shareholders at the company's next general meeting.

In its release, Bakkafrost said it is committed to a positive partnership with local Scottish communities and to working within Scotland’s existing regulations for salmon farming – with the caveat that it will seek to “strengthen” those regulations.

“Bakkafrost is committed to strong cooperation with local communities and authorities and hopes to stimulate employment through significant investment in the business. Additionally, Bakkafrost is committed to ongoing work to strengthen the Scottish regulatory framework,” the company said.

DNB, Goldman Sachs International, and Nordea advised Bakkafrost in the transaction, while Daiwa Corporate Advisory Limited (DC Advisory) acted as financial advisor and Aabø-Evensen & Co Advokatfirma AS and CMS functioned as legal advisors to SSC.

Images courtesy of Bakkafrost, The Scottish Salmon Company