EXEO backs South African aquaculture company

Africa-focused private equity firm EXEO Capital has invested in TerraSan, an aquaculture company operating on the south and west coasts of South Africa.

The TerraSan parent company, in which EXEO made a minority investment, was established in 1963 and maintains subsidiaries devoted to abalone, feed, mussels and pelagic fish, among others. Headquartered in Cape Town, TerraSan also owns two fishing vessels and maintains a unit devoted to natural foods.

EXEO partner Kennett Sinclair said that TerraSan had already proved it can serve as the basis for consolidation in aquaculture and that the company would pursue both organic growth and acquisition opportunities going forward. Sinclair declined to specify the size of the investment, but did tell Agri Investor that the investment in TerraSan was within EXEO’s typical range of between $5 million and $20 million, accounting for between 15 and 50 percent of the company.

“TerraSan’s strategic intent is to grow organically by expanding its abalone and mussel production facilities, improving the quality of the bulk fishmeal produced in order to command a higher price for exports and becoming the processing home for the smaller quota holders in the small pelagic fish industry.”

Capital pool

Capital for the TerraSan investment came from EXEO’s Agri-Vie Fund II, which reached a first close on $100 million in February and has now raised $175 million. The fund is soliciting commitments from institutional investors in Africa, Europe and North America.

Investments from the $100 million predecessor vehicle, Agri-Vie Fund I, included africaJUICE, a fruit juice producer in Ethiopia, Kenyan flower producer Kariki Group and HIK Abalone Farm, a South African abalone producer.

Sinclair told Agri Investor that because HIK is a competitor of TerraSan, EXEO was already familiar with the abalone industry, which benefits from strong demand from Asian countries, where the quality of South African supply is widely recognized.

“Especially in our country and our continent, foreign currency is king. You want to produce in local currency and have your sales in foreign currency,” he said. “From our point of view it [the TerraSan investment] is a good currency hedge and it’s a growing market.”

A key challenge in that growing abalone sector, according to Sinclair, is the illicit trade, which has boomed because some consumers view abalone as an aphrodisiac.

“The illicit export market is actually the exact same size as the formal market,” Sinclair said. “The reason why abalone gets poached is money. There are cartels operating in our country that are working with gangsters and these guys go in en-masse and they just strip the coast of abalone.”

Import substitution

The mussels portion of the business is smaller and has lower growth prospects and profit margins, but fits very well with EXEO’s focus on import substitution in the African markets where it invests. Growing consumption of mussels within South Africa, Sinclair said, is mostly met with supply imported from New Zealand.

Similarly, TerraSan’s exports of fishmeal allow the company to gather foreign currency and benefit from the global expansion of the aquaculture industry.

Another important factor for the TerraSan investment, said Sinclair, was the ability to utilize support from the Aquaculture Development and Enhancement Plan, a government program designed to encourage employment in the industry.