In its first aquaculture investment, the Ontario Teacher’s Pension Plan has acquired Canadian mussels producer Atlantic Aqua Farms from San Francisco-based buyout firm Encore Consumer Capital.
AAF produces and processes blue mussels that are sold under the J.P.’s Shellfish, Confederation Cove and Canadian Cove brands. Headquartered in Orwell Cove, Prince Edward Island, the company also offers live lobsters sourced from both Maine and Canada in addition to oysters and clams.
OTPP said that the investment grew out of its mandate to invest in sustainable sources of food production, and portfolio manager Stephen McLennan told Agri Investor that the acquisition comes after a 36-month study of aquaculture.
McLennan explained that the C$180.5bn ($141.3 million ;€119.9 million) pension views aquaculture as being very similar to agriculture in being able to deliver the food-based inflation protection the fund is focused on building into its portfolio. The fact that institutional investors have generally not been very active in the sector, McLennan said, is another factor that helped make the AAF acquisition attractive for OTPP.
He added that return expectations in agriculture and aquaculture are similar, and the fact that bivalve aquaculture – such as is employed to grow mussels – shares many characteristics with land-based agriculture made it a natural place to start OTPP’s aquaculture investments.
“Shellfish, or mussels in this case, are on-trend from a food consumption perspective, with great supply-and-demand characteristics over the long term,” he said.
An additional benefit to mussels, McLennan said, is that because they are naturally fed through water flows, they have a positive impact on the environment without requiring any feedstock.
McLennan said that OTPP plans to bring together a new board of directors at AAF and work with management to develop a long-term strategic plan that could include both greenfield projects and acquisitions.
“It can be difficult to deploy substantial amounts of capital in discreet businesses, and that really drives you down the path of finding a platform you can use to go out and be the true operator of that capital of that investment sector,” McLennan said.
Economies of scales
It is too early to say what the focus of OTPP’s additional investments into AAF or elsewhere in the sector might be, according to McLennan.
“Clearly, the core competency and existing assets are in the shellfish business, so that would likely be a first place to start,” he said. “Down the road, I think we would be open to considering other species.”
McLennan declined to provide more detail about the size of the AAF transaction.
In August, McLennan told Agri Investor that OTPP’s focus is often on investments that can reach significant scale, since a $10 million transaction typically requires the same amount of work as a larger one.
“We are seeing a sweet spot for size, for what we would refer to as a platform, in that $100 million to $400 million range,” he said. “You can start constructing a story that’s sufficient in size and scale to really drive our results from a natural resources portfolio perspective.”