WHY SHMP IS A HUGE BUY RIGHT NOW
Perot tops growing list of family funds eyeing RAS investments.
(AND WE HAVE THE PATENT PEROT COULD EASILY BUY US OUT !
By Jason HuffmanDec. 10, 2018 17:45 GMT
Operations director Eric Meyer, talks to a crowd of roughly 200 visitors to Atlantic Sapphire's construction site in Homestead, Florida. Photograph by Eric Wuestewald.
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There are few in the business world who don’t know the legend of how former two-time presidential candidate H. Ross Perot sold Electronic Data Systems and Perot Systems for billions after building them into technology giants. But David Radunsky, a principal at Perot Holdings, in Dallas, Texas, would like to make the now 88-year-old Texas man’s family just a bit wealthier with an investment in the recirculating aquaculture system (RAS) industry.
Radunsky was one of the roughly 250 attendees, including at least five investment firms, at the Conservation Fund's and Freshwater Institute’s Aquaculture Innovations Workshop(AIW) last week in Miami, Florida. He told Undercurrent News on the sidelines of the event that he's been investigating RAS as a potential equity opportunity for nearly two years and could be months from making a big move in the space.
He believes the industry is poised to meet a growing demand for protein and is looking for a combination of "the right technology and operational management team". But what he most wants to see from any prospective company he invests in is evidence that it can overcome the high cost of production.
H. Ross Perot in 1992. Photograph from Shutterstock.
"It's not that I'm afraid," Radunsky said about the prospect of investing money. "I'm just watching for certain evidence to come to light."
Radunsky, one of the 12 members of the Perot Holdings investment team, declined to estimate how much his firm might be willing to invest in RAS, but he stressed that he was not interested in buying a small share of a producer. Rather, he said, he would be looking to take a major stake in an existing company or a startup.
Perot Holding’s website says it looks to place between $25 million and $100m in each of its investments and maintain a majority equity ownership. Other stated criteria include: seasoned managers who want to retain or acquire meaningful ownership; proven business models; “above-average operating margins and returns on invested capital”; “attractive markets that support multiple avenues for growth”; “predictable revenues and cash flow”; and “minimum [earnings before interest taxes depreciation and amortization] of $5m.”
The firm is looking for companies geographically located in the US and prefers the Southwest, Southeast and Midwest, including especially Texas, its website says. In particular, it likes recapitalizations, management-led buyouts, inter-generational business transitions and corporate divestitures.
Disruption happens slowly
Tone Bjornstad Hanstad, an equity research analyst who follows the global salmon industry for DNB Markets, in Oslo, Norway, has been following the growing interest in RAS for a few years.
In 2017 her firm logged more than 20 RAS salmon projects underway that would produce 150,000 metric tons of fish by 2020 or later. Most will not make it, she advised at the time. However, at this year’s AIW event, Hanstad said DNB has now identified at least 30 land-based projects underway with plans to produce more than 345,000 metric tons of salmon in the future.
Hanstad pointed to a couple factors driving the land-based salmon industry in particular, including improving technology, the increasing demand for salmon, especially in the US, and a lack of matching supply growth from traditional net pen growers. The salmon industry is still facing biological challenges, but salmon prices will stay high going forward, DNB believes.
The US imported 334.3m kilos of salmon worth $3.4 billion during the first 10 months of 2018, an average of $10.17/kilo, according to the latest trade data from the National Oceanic and Atmospheric Administration. That’s up 9.8% in volume and down a fraction of a percent in price from the first 10 months of 2017 when the US imported 304.6m kilos worth $3.1bn ($10.18/kilo).
Tone Bjornstad Hanstad, an equity research analyst with DNB Markets, speaks at the Aquaculture Innovation Workshop, in Miami, Florida. Photograph by Jason Huffman.
In her presentation at the AIW conference, Monica Jain, the founder of Fish 2.0, compared the disruption caused by the recent incursion of new technologies in the aquaculture industry, including RAS itself, to the introduction of smartphones to the cellphone market in the 1990s.
Like many disruptive technologies, smartphones took just a small percentage of market share in their early years before their use exploded and they took over the space, she said.
“I think that is what we are starting to see, not just in land-based farming or ocean-based farming, but in production technology, in farm design, in alternative fish feed, in disease prevention, in quality control and supply chain logistics, everything that happens from the farm to the store to the plate,” she said. “And that is what the investment community is starting to notice."
It’s important to note that “disruption is usually not the result of any single innovator, but rather the result of several innovators who each chip away at the market share of the incumbents and eventually take over the market,” she told Undercurrent later.
Fish 2.0 kicked off its latest bi-annual competition, connecting seafood innovators with investors and each other, with an event in Australia in October. Aquaculture is one of the main focus areas this time for the group. Jain told attendees at AIW that she is getting two calls per week from new prospective investors seeking to learn more about aquaculture. Interest is not limited to the US or North America, she said.
“That has never happened before,” she said, adding the caveat that many of the investors she hears from are not yet ready to sign checks.
Prospective investors have been attracted to the sector, in part, because of the enthusiasm over e-commerce and food technology, Jain said. They like that RAS companies are still small because they can roll them up and put them together.
“Private equity people love that,” she said.
“…They’re wanting to learn and wanting to create strategies for how they can thoughtfully invest in this field,” she said of investors. “They’re building portfolios. They’re raising funds for aquaculture-related strategies. They’re building partnerships with one another.”
'In this quadrant we can expect new disruptors to emerge, to merge with each other, to rise and to fall. Not everyone will be a winner' -- Fish 2.0 founder Monica Jain
Jain expressed concern that the dramatic number of investors coming into the space have enough aquaculture technology-related opportunities to invest in.
"In this quadrant we can expect new disruptors to emerge, to merge with each other, to rise and to fall. Not everyone will be a winner," Jain said. "But this is just exactly where private equity and hedge funds and VCs and other investors like to play. They balance the risk with the reward in every investment. The fact that it is risky is why they come to play."
Nordic Aquafarms and Whole Oceans validated notion
Radunsky, who spent 14 years as the general counsel and chief operating officer at Perot Investments before becoming one of the dozen members of the investment team at Perot Holdings in 2002, has been following the RAS market for more than two years. He said he started absorbing everything he could find on the subject after reading about the stress on wild fish stocks and growing global demand for seafood.
Then, in January 2018, Radunsky, like many other prospective investors, saw the announcements by Nordic Aquafarms and Whole Oceans about their plans to build giant RAS Atlantic salmon facilities in Maine. The news helped to validate his notion that there was a potentially strong financial future in the industry, he said.
Jose Prado, CFO and EVP, addresses a crowd at the Atlantic Sapphire construction site in Homestead, Florida. Photograph by Eric Wuestewald.
Atlantic Sapphire is already far along in its construction of a RAS facility in Homestead, Florida, with plans to harvest as many as 10,000 metric tons of Atlantic salmon per year by 2021 and 90,000t by 2026. It gave some 200 attendees from the AIW event a tour of its construction site on Dec. 6.
Combined, the three US East Coast facilities have set goals of growing and harvesting, in just a few years, more than a quarter of the 400,000t of Atlantic salmon consumed annually in the US, though that number is expected to increase as Americans are also growing their appetite for salmon.
It's unclear how much capital Perot Holdings has to play with, but Forbes Magazine lists H. Ross Perot as the 172nd wealthiest person in the world and reports that he has a net worth of $4.1bn. And H. Ross Perot, Jr., one of his five children, is no. 354 on Forbes’ list with $2.3bn in net worth.
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