High valuations, monopoly fears put the brakes on tuna M&As

Mergers and acquisitions (M&As) in the tuna sector are currently few and far between due to the lack of right-sized businesses available and the high valuations being placed on those companies, according to Jose Antonio Zarzalejos, director of corporate finance at Price Waterhouse Cooper (PwC) Deals.

Speaking at the sixth European Tuna Conference in Brussels, Belgium before the 2017 Seafood Expo Global, Zarzalejos highlighted that while a number of large global players had added to their business portfolios over the course of the last decade, such transactions had become limited in recent times because smaller tuna businesses have been demanding high valuations, while bigger deals have been hindered by competition authorities.

“A massive consolidation has taken place in the industry, especially in Europe in recent years and significant transactions in the Americas over the last decade,” he said. “With the lack of sizeable independent businesses available right now, if you want to have an impacting M&A and grow your business substantially by acquiring a large company, that is going to cost.”

Zarzalejos said PwC had seen a number of deals with “hefty” company valuations north of 10 times earnings before interest, taxes, depreciation and amortization (EBITDA).

“There has only been a limited number of transactions in the last two or three years; not because of a lack of appetite for doing deals but because small businesses are demanding very high valuations. Also, those businesses that are large enough to be regarded as ‘big deals’ often face competition issues,” Zarzalejos said. “So there are still a number of countries, especially Spain, Italy and France, where you have a collection of small to medium-sized businesses still operating in very fragmented markets.” 

In addition to price expectation issues, another complex challenge is trying to align small- and medium-sized family businesses with large corporate entities, said Zarzalejos. This is because of the historical culture that tends to exist at family-run companies and the relationships that these firms have with their local markets. 

Yet there is still room for some M&A activity, he said. 

“Europe has become a region of small and medium M&A deals. We have already seen the large deals across the line and we don’t really expect to see many more large transactions taking place – deals north of EUR 100 million (USD 108 million). But maybe there will be some deals taking place below that level, and we see a number of opportunities in Africa and Latin America where there are still relevant, independent and sizeable businesses,” Zarzalejos said.

However, he warned that businesses in both regions typically bring two large challenges: Firstly, they are usually vertically integrated so they include fleets, which can pose a challenge for consolidators; and secondly, the quality of the financial reporting is very poor, with much less clarity than with businesses in Europe or the United States.