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How free salmon licences became high value on the London Stock Exchange

Sunndalsøra in Norway:  Benchmark Holdings has invested heavily in breeding and genetics, after purchasing Salmobreed and Akvaforsk Genetics Center, both entities spinned off from Norwegian breeding research.

Sunndalsøra in Norway:  Benchmark Holdings has invested heavily in breeding and genetics, after purchasing Salmobreed and Akvaforsk Genetics Center, both entities spinned off from the Norwegian breeding research from the last 40 years.

Investments in genetic breeding technology boost values for some marine entrepreneurs, following  Benchmark Holdings’ heavy shopping of tilapia and salmon breeding programs in the US, Iceland and Norway.

Tellef Øgrim

Tellef Øgrim

Gorm K. Gaare

Gorm K. Gaare

Benchmark Holding's acquisition of the Norwegian aquaculture genetics and research business Akvaforsk Genetics Center AS (AFGC) this July illustrates the value of a service provider in an industry looking for new solutions to critical challenges.

The Benchmark take-over precisely shows the value of free research licenses, issued by the Norwegian government to selected companies in the aquaculture field.

In its "Market News" communication from the London Stock Exchange, Benchmarks explains the importance of the research licenses.

Malcolm Pye, CEO, Benchmark Holdings.

Malcolm Pye, CEO, Benchmark Holdings.

"Higher royalty income and the profits from the two salmon research licenses are expected to have a significant impact on AFGC's revenues and operating profits from FY 2016. In the year ending September 30th, 2016 AFGC's revenues are expected to exceed NOK 26m (£2.05m) and operating profits NOK 13m (£1.03m)4," writes Benchmark.

Read the full text concerning the acquisition here.

Benchmark Holdings on the London Stock Exchange.

Read Benchmark Holdings press release here.

Expectance price

Some might be surprised that a company that did not turn over more than NOK 12m in revenue for 2014 could obtain the NOK 105m that Benchmark paid for the company at the end of July.  The Norwegian analyst Stein Alexander Aukner (DNB Markets), however, is far from shocked by the price, considering Benchmark's profit calculation of NOK 12m in 2016 and the fact that the acquisition includes a genetic data bank".

Aukner adds that Benchmark's acquisition of SalmoBreed last year shows that the British holding company has a history of high evaluation of businesses in the industry. 

Benchmark is not alone in putting high values on individual aquaculture businesses. Aukner points to Cargill's recent acquisition of the salmon feed maker EWOS for EUR 1.35bn to demonstrate his point. In  2013, the German genetics company EW Group purchased the Norwegian breeding company AquaGen AS for around NOK 0,8 billion.

The value of services

The Norwegian analyst's "key takeaway" from these take-overs is that "the interest for aquaculture increases, but for the time being the investors prioritizes the service industry before the fish producers themselves".

The research licences that to such an extent attracted Benchmark's interest in Akvaforsk Genetics Center AS is handed out by Norwegian fishing authorities to selected companies in order to stimulate the Norwegian fish farming industry. The arrangement is primarily aimed at  research institutions at universities or university colleges. In particular instances, where a farming plant is an integral part of a research project, a research licence can be granted to a private company (like AFGC).

Read more about research licences here (Norwegian).

From the government directorate that administers the research licences, Blue Frontier Magazine is told that such licences have been known to increase a company's valuation. Apart from stating that fact Fiskeridirektoratet is not willing to comment on Benchmark's evaluation of AFGCs license.

Aquaculture entrepreneurs Bjørn Skjævestad and Arne Gulbrand Ruud selling off genetics companies, adding to the dividends. Photo: Bjørn Tore Ness.

Aquaculture entrepreneurs Bjørn Skjævestad and Arne Gulbrand Ruud selling off genetics companies, adding to the dividends. Photo: Bjørn Tore Ness.

Benchmark acquired AFGC from AFGCs owner Veso. Veso's primary stakeholders are Aquanova Invest (61%) and the Norwegian ministry of agriculture (34%). In its turn, Aquanova is owned by Altavida (Bjørn Skjævestad) and Futuro (Arne Gulbrand Ruud).  Ruud is the CEO and Skjævestad the COB of Veso AS, a former monopolist on vaccines to the Norwegian aquaculture market. The key figures in NOK below.  In the years from 2008 to 2014, the Veso-owners has accumulated a dividend of NOK 131,8 millions. 

 
A natural combination

In a statement for Blue Frontier Magazine following the Benchmark take-over, Skjævestad and Ruud explain the ongoing structuring of the industry makes it difficult for AFGC to stand alone. "With Benchmark's commitment to both salmon and tilapia genetics, it was a natural solution to combine the biggest independent competence milieu within these two species and one of the breeding companies together."

As seen before

The research licences have, according to Ruud and Skjævestad, first of all, been significant to document the advances in the breeding and to test new solutions in larger scales.

"We have felt a rising interest for breeding and genetics from both Norwegian and foreign actors. When we at last decided to open up for a sale of AFGC it was important to find an environment that best secured a further development of the company's existing organisation and competence", write the two investors in a response to questions from Blue Frontier Magazine.

The acquisition of AFGC gives Paul Midtlyng, who researched for Veso 1995 - 2008, and who now heads Aquamedic AS, a feeling of deja vu.

"In my view it follows a well-known pattern where upstarts, where the government has a dominating stake after a while, is taken over by private companies, who in their turn gilds their assets 5-10 times when they sell it on to financial investors. Economically and politically spoken the same happened with Cermaq and with EWOS", writes Midtlyng in an E-mail to Blue Frontier Magazine. 

Paul Midtlyng

Paul J. Midtlyng

Midtlyng, not unknown for his leftist views on society, makes a comparison to what happened with Fiskeoppdretternes avlsstasjon (a breeding station, that was established not far from Trondheim, Norway) that now is a part of Aqua Gen AS. 

"This example could have been taken directly from the book Monopoly Capital: An Essay on the American Economic and Social Order by  Paul Sweezy and Paul A. Baran, that I still have in Norwegian on my bookshelf."

Midtlyng sees the sale of AFGC AS to Benchmark Holding PLC as a natural consequence of Benchmark's acquisition of Salmo Breed and Stofnfiskur (in December 2014), considering the relevance of the scientific expertise in AFGC. 

"The calculated value of the RnD licences is probably influenced by the high price of salmon. It is also of importance that there has been conducted a lot of active and valuable research and development in these research licences, that, in contrast to ordinary RnD licences, have limited, set duration. This also gives future governments a hand on the wheel, if that really is what they want", writes Midtlyng.

Here are the key figures for Akvaforsk Genetics Center.

 

Monopoly Capital: An Essay on the American Economic and Social Order is a book by Paul Sweezy and Paul A. Baran published in 1966

In  2013, the German genetics company EW Group purchased the Norwegian breeding company AquaGen AS for around NOK 0,8 billion.