MacDuff Shellfish Group Limited Acquisition Overview

MacDuff Shellfish Group Limited
Acquisition Overview
October 2015
0
Forward Looking Statements
This presentation may contain forward-looking statements. Such statements involve known and
unknown risks, uncertainties, and other factors outside management’s control including but not
limited to total allowable catch levels, selling prices, weather, exchange rates and fuel costs, that
could cause actual results to differ materially from those expressed in the forward-looking
statements.
Clearwater does not assume responsibility for the accuracy and completeness of the forward-looking
statements and does not undertake any obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances.
1
Transaction Overview


On October 9, 2015, Clearwater Seafoods. (“Clearwater”, “CSLP”, or the “Company”) announced that it has entered into a definitive agreement to acquire
MacDuff Shellfish Group Limited ("MacDuff" or the “Target”), United Kingdom’s largest processor of wild shellfish, from the Target’s founding family and its
private financial partner

The acquisition offers Clearwater access to a supply of existing complementary species, accretive earnings, synergies in harvesting, processing,
marketing, sales and distribution, as well as attractive potential for future growth

Total purchase price of £98.4(1) million (approximately C$197 million), representing a multiple of approximately 8.2x based on 2016 MacDuff Adjusted
EBITDA of £11.5 million(2)

The transaction is expect to close on Friday October 30, 2015
As outlined in the Sources and Uses below, the transaction is expected to be funded as follows:

C$73 million under the Company’s revolving credit facility (the “Revolver).

C$75 million Term Loan B (via an upsizing of the Company’s existing Term Loan B)

C$54 million unsecured deferred consideration obligation (“deferred consideration”) approximately £27 million
SOURCES AND USES OF FUNDS
Sources
Cash from the Balance Sheet
Revolver Fundings (3)
Increase to Existing Term Loan B (4)
Deferred Consideration Obligation
Total Sources of Funds
1.
2.
3.
4.
C$MM
-73
75
54
$202
Uses
Acquisition of Target Equity
Repay Target Debt
Estimated Fees & Expenses
Total Uses of Funds
C$MM
$160
37
5
$202
Based on an assumed F/X rate of £1.00 = $2.00 CAD.
Adjusted EBITDA is based on full realization of recent investments made by MacDuff (most notably of which is the June 2015 acquisition of 4 scallop trawlers and licenses, and additional preferred procurement access in
complimentary shellfish species), organic growth, and synergies. This recent investment, along with the noted organic growth and early acquisition synergies, is projected to help Macduff grow adjusted EBITDA another 25%
to £11.5 million in fiscal 2016. In addition, Clearwater has identified additional opportunities to invest and realize other synergies that will further enhance volume, revenue, margins and adjusted EBITDA in 2016 and
subsequent years.
Includes exercise of C$25 million accordion; C$73 million revolver borrowings are expected to be paid down to zero by year end.
Increase to Existing Term Loan B in CAD. Assumed to be sized at approximately US$58 million, based on an assumed F/X rate of $1.00 USD = $1.31 CAD.
2
MacDuff Overview
COMPANY AND INDUSTRY OVERVIEW

MacDuff is one of Europe’s leading wild shellfish processors and is a vertically
integrated business, MacDuff is still run by the founder’s descendants today

MacDuff owns one of UK’s largest scallop fishing fleet, comprised of 14
vessels and sells its fresh and frozen harvests to European and Far West
nations
TRANSACTION RATIONALE

MacDuff brings abundant access to additional seafood supply in key markets
and channels along with a well-established brand, U.K.-based harvesting and
processing expertise, a strong local management team, and a talented
workforce

The acquisition of MacDuff will significantly enhance Clearwater’s scale, and
provide opportunities to access additional supply and accelerate the growth of
revenues, profit, and free cash flow




Provides access to market leading supply to attractive complimentary
species including King and Queen scallop, langoustine, brown crab, and
whelk
–
MacDuff’s scallop vessels accounted for 28% of 2014 UK scallop
landings
–
MacDuff’s accounted for 28% of UK supply of whelks
Additionally, MacDuff has two highly automated processing plants (in Mintlaw
and Stornoway) that allow the company to handle any size of catch with lean
production and optimal product quality

For the year ended September 30, 2015 MacDuff is expected to generate
approximately £52 million of sales and £9.2 million of adjusted EBITDA,
representing annual growth of 13% and 30%, respectively
Provides enhanced access to key distribution channels, including food
service and grocery retail in multiple markets, including the U.K., Italy,
Spain, and Portugal

Expands the distribution of MacDuff products, with Clearwater providing
deeper market access as well as sales and marketing strength in North
America and Asia, and especially in Japan and China

Expands Clearwater’s North Atlantic harvesting operations and creates
integrated U.K.-based primary and secondary processing capabilities and
expertise with land-based processing facilities in Scotland

Creates a new growth platform for Clearwater. MacDuff has grown rapidly
over the past four years, has identified multiple growth opportunities, and
is the fishing company best positioned to lead and benefit from future
investment
Significant barriers to entry to Scotland’s shellfish industry from high
investment and start up costs
3
MacDuff Vessels and Facilities Overview
FISHING VESSELS





Scallops

13 King Scallop Vessels and one Queen Scallop Vessel

Two vessels equipped with ‘frozen at sea’ capabilities, a feature
unique to the scallop industry

Europe’s largest scallop fishing fleet, accounting for 28% of 2014
United Kingdom scallop landings
Langoustines

Langoustine boats are typically owner-managed

MacDuff has a strong procurement business with exclusive supply
agreements through 14 contracted fishermen
Crab

Strong procurement business with exclusive supply agreements
through investments in fishing vessels
Whelk

54% of Whelk harvest comes from small day boats

MacDuff has a strong procurement business with exclusive supply
agreements via investments in 3 large vessels
In June 2015, MacDuff acquired an additional 4 scallop trawlers and
licenses, along with additional preferred procurement access in
complimentary shellfish species (i.e. Whelk)
PROCESSING FACILITIES

MacDuff currently operates BRC Grade A production facilities:

Mintlaw Factory
– Main processing facility in north-east Scotland
– 91,000 square foot facility with 4,500 pallet cold store
– Highly automated with ability to process specialty orders and
various sizes of catch
– Processes all species and the majority of MacDuff’s volumes

Stornoway Factory
– Acquired in September 2013 from Young’s Seafood
– Primarily processes langoustines and scallops harvested in
north-west Scotland
4
Financing of Transaction


As outlined in the Sources and Uses, the transaction is to be funded as follows:

C$73 million under the Company’s revolving credit facility (the “Revolver). Clearwater is seeking to upsize its Revolver to C$100 million

C$75 million Term Loan B (via an upsizing of the Company’s existing Term Loan B)

C$54 million unsecured deferred consideration obligation (“deferred consideration”) approximately £27 million
Leverage is expected to increase with pro-forma leverage of approximately 5.3x at closing decreasing to below 4.5x by December 31, 2015 and below 4.0x
by December 31, 2016 when Clearwater and Macduff see the full realization of recent investments and organic growth. As a result, management expects
to operate above its leverage target of 3.0x with the intention of returning to this goal over the course of two to three years.
PRO FORMA CAPITALIZATION TABLE
Pro Forma 7/4/2015
Pre-Transaction
C$MM
As of 7/4/2015
Cash & Equivalents (1)
LTM Adj.
EBITDAx(6)
$30
(2)
Transaction
Adjustments
C$MM
--
$30
LTM Adj. EBITDAx(6)
at 7/4/2015
% of
TEV
--
--
73
73
0.8x
7%
Term Loan A
28
0.4x
--
28
0.3x
2%
Delayed Draw Term Loan
29
0.4x
--
29
0.3x
3%
239
3.3x
75
314
3.4x
28%
2%
Revolver (C$75MM to C$100MM)
Term Loan B (3)
Other Debt
Senior Secured Debt
Senior Secured Net Debt (1)
Deferred Consideration Obligation
(4)
17
0.2x
--
17
0.2x
$313
4.3x
$148
$461
5.0x
$283
3.9x
$431
4.7x
39%
54
0.6x
5%
--
--
Total Debt
$313
4.3x
Total Net Debt (1)
$283
3.9x
Book Value of Equity
Total Book Capitalization
Market Value of Equity (5)
Total Enterprise Value
(6)
156
2.1x
$469
6.4x
633
8.7x
$916
12.5x
$73
LTM 7/4/2015 Adjusted EBITDA
54
$202
--
$515
5.6x
$485
5.3x
43%
156
1.7x
$671
7.3x
--
633
6.9x
57%
--
$1,118
12.2x
100%
$18
$92
(6)
LTM 12/31/2015E Adjusted EBITDA
1.
2.
3.
4.
5.
6.
Cash allowable for netting per existing Credit Agreement. Per the Credit Agreement, up to $35 million can be netted for net debt and leverage calculations.
Includes exercise of C$25 million accordion; C$65 million revolver borrowings are expected to be paid down to zero by year end.
Increase to Existing Term Loan B in CAD. Assumed to be sized at approximately US$58 million, based on an assumed F/X rate of $1.00 USD = $1.31 CAD. Additionally, increase in 2015 year-end balance is due to adverse
movement in F/X rates.
Represents 33.75% of outstanding Closing equity value (“CEV”). Refer to overview of MacDuff acquisition agreement.
Based on C$10.56 share price as of 10/5/2015 close and ~60 million shares outstanding after giving effect to the ~C$61 million equity offering and concurrent private placement at the end of June.
Defined as leverage calculation as per credit agreement.
5
Overview of MacDuff Acquisition Agreement

The transaction is based on an agreed upon enterprise value, including debt and long term obligations assumed (the “Enterprise Value”)

The equity value at closing (the “Closing Equity Value” or “CEV”) shall be equal to the Enterprise Value less debt and long term obligations assumed or
repaid at closing by Clearwater

The current ownership is split approximately 55%/45% between descendants of the founding family group (the “Controlling Partners”) and a private financial
partner (the “Financial Partner”)

The value of the shares held by the Financial Partner (approximately 45% of the CEV) will be paid for 100% in cash at closing

The value of the shares held by the Controlling Partners will be paid as outlined below.

Cash at closing will be paid to the Controlling Partners representing approximately 21.25% of the CEV

Incentive Feature. The Controlling Partners remaining approximate 33.75% of the CEV (the “Earn-Out Shares”) will be paid in the form of an
unsecured indebtedness obligation of Clearwater, with the amount paid over the next five or six years. In each year the holders of the Earn Out Shares
can elect to be paid up to 20% of the total respective Earn Out shares. Clearwater will have the right to exercise the payout of 20% of the total Earn Out
shares annually commencing two years after the date of closing.
The amount of each Deferred Consideration payment will be paid as follows:
The greater of:

(i)
£5.4 million; OR
(ii)
6.75% of the equity value of the business calculated as 7.5x the last twelve months adjusted EBITDA less the outstanding debt of Macduff
At closing, MacDuff will become a wholly-owned subsidiary of Clearwater

Existing lenders under CSLP’s Credit Agreement will be secured by the assets of MacDuff, other than such assets securing Investment Working Capital
Facilities, and will be secured by 100% of the stock of MacDuff
6
About MacDuff
Macduff Shellfish Group (“Macduff”) is one of Europe’s leading wild shellfish processors and is a vertically integrated business,
owning 14 scallop fishing vessels and production plants in Mintlaw and Stornoway, Scotland.
The business specializes in scallops, langoustines, whelk and crab, has sales of approximately £52 million and trades globally,
employing over 400 people at the seasonal peak.
Macduff has been an active consolidator in the UK fishing sector in recent years acquiring Scott Trawlers, Saltire Fisheries, four
vessels and a whelk procurement and distribution business from The Greendale Group and the former Young’s Seafood factory in
Stornoway.
The business was set up in 1985 by the Beaton family in Macduff, buying and selling live shellfish direct from the fishermen for
freight to Europe. The factory in Mintlaw was bought in 1996 as the company diversified from chilled into frozen shellfish, the
mainstay of its current operation.
Further information is available on Macduff’s website at http://macduffshellfish.co.uk/
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OUR PROCESSING PLANTS
EQUIPMENT
Our processing plants in Mintlaw and Stornoway are highly automated whilst
also supporting flexibility of lines and workforce for traditional hand crafted
products. This investment has allowed Macduff Shellfish to handle any size of
catch with lean production excellence for optimal product quality.
SKILLED STAFF
Employing almost 400 people across our Vessels, Processing Plants,
Technical and Administrative Services, Engineering & Fabrication
workshops.