The formation of a joint venture between investment fund Permira and a group of Ye Cherng Co. shareholders for Southeast Asian health and feed giant Grobest Holdings will mark the next stage in the company’s development, as the latter looks to expand its operations beyond Asia.
In November the two firms announced that a company backed by Permira funds had acquired a 50% stake in Taiwan-based Grobest, which also has operations in Vietnam, Thailand, China, India, Indonesia, Philippines, and Malaysia.
“For many years, we have identified Grobest as a real R&D and technical leader in functional feed and health,” Ola Nordquist, head of Permira Nordic, told Undercurrent News.
Grobest, which Finance Asia reported in October as possessing an enterprise value around $1 billion, has been a run by two families since it was founded in 1974. Currently, it is represented by CEO Ko Chi-Kang, and chairman Chen Chun-Ping, both of whom will stay on at the firm.
After successfully developing Grobest for more than four decades, the families were looking for outside expertise in order to further expand the firm’s outreach, according to Nordquist.
A suitable match
Permira is a global private equity fund with an estimated €33 billion of assets under management, as well as a portfolio of over 30 companies across five sectors: consumer, financial services, healthcare, industrials and technology.
The deal with Grobest marks Permira’s third investment in the aquaculture sector, following involvement with Dutch animal feed company Provimi and Nordic aquatic health firm Pharmaq.
However, it has since sold stakes in both: Provimi to US agriculture giant Cargill in 2011, and Pharmaq to listed animal vaccine leader Zoetis for $765 million in November 2015. Grobest will, therefore, become the sole feed firm in Permira’s current portfolio.
Meanwhile, Grobest believes Permira is an ideal fit for the company as it looks to expand its sales beyond the Asian market.
“Since 1974, Grobest has been a pioneer and technological leader in the areas of innovative and differentiated functional feed products, as well as complementary services to farmers throughout the Asia region,” Jennifer Kuo, a spokesperson from the Asian feed giant told Undercurrent.
“At Grobest, as we eyed plans for future growth, we saw a natural fit with Permira given their expertise and track-record in the aquaculture industry and their knowledge of how to build and strengthen businesses like ours to become global leaders.”
Out of Asia
Permira has already set out ambitious plans for what it can bring to its new investment.
“First and foremost, we’re looking to bring in incremental management talent to the business to help them expedite their growth further into their existing markets and regions in Asia,” Ola Nordquist, head of Permira Nordic said.
Secondly, the private equity group also plans to invest further in Grobest’s existing line of feed products and promote some of its more innovative functional feed and health products.
However, Nordquist was clear that the new partnership would also be looking to continue diversifying its product line beyond Grobest’s primary focus of shrimp feed.
“Particularly in Asia, you have a lot of different species in aquaculture – besides shrimp, you also have a lot of marine, fresh and other high-value species that we believe could really benefit from a high-end functional feed that Grobest has,” he said.
Undercurrent understands that the new joint venture will focus solely on feed and health products. Grobest’s aquaculture processing branch, which the company had previously been looking to develop in India and Indonesia, was not included in the transaction and will remain under the ownership of the selling families.
Finally, Permira has also stated its intention to look for opportunities to further consolidate the fragmented feed industry via acquisitive growth both in Asia and across the globe.
“We see opportunities in both,” Nordquist told Undercurrent. “Grobest is a very strong player in shrimp, where they are technology leaders, but there are also opportunities to further build their business into other high-value fish species.”
Right Time, Right Place
The deal is one of several to take place in the Southeast Asian feed sector over the past few years, including the $412.5m acquisition of Gold Coin by a company belonging to Aboitiz Equity Ventures in July 2018 at the time the largest ever deal in Southeast Asia’s animal feed space.
Additionally, in 2016, US investment firm KKR & Co. took a 10.44% stake in JapfaComfeed Indonesia, a subsidiary of agribusiness group Japfa, for $81.2m. Meanwhile, Danish industrial player BioMar has also established a fish feed production company in China, following a joint venture agreement with China’s Tongwei Co in 2015.
According to Rabobank analyst GorjanNikolik, who advised Permira on the investment, the growth of the shrimp feed sector in Southeast Asia makes it a very tempting target for financial investors at present.
“There are a couple of very good drivers – it’s not just volumes that are growing, but there is also an ongoing professionalization of the sector,” Nikolik told Undercurrent. “Farmers are becoming more knowledgeable and capitalizing better; the larger farmers are then acquiring smaller farmers, so there’s consolidation.”
In addition to the rapid increase in volume and scale of feed operations, the region also has a growing demand for quality, Nikolik said.
“As the whole space becomes more sophisticated, they demand better quality feed products and more health products like water treatment additives and functional feed; feeds that are not just basically for growth, but are there to prevent disease, etcetera,” he said.
For a financial investor like Permira, the current development and reduced biological risk in Asian feed represented the perfect moment to enter the sector.
“It was clear that they [Permira] had looked at this industry for a long time, and there was a constant threat of EMS [early mortality synrome] and EHP [enterocytozoonhepatopenaei]. With the threat becoming less and growth and professionalization coming back to the sector, it makes it a good moment to enter as a financial investor,” the Rabobank analyst said.
Nikolik noted that companies like Permira have been using their knowledge from the salmon farming sector and re-applying it to feed, as the development of the Asian feed sector begins to follow a similar route.
“Some of the things that we’ve seen happening in salmon – the professionalization, the use of more high value feeds instead of bulk feeds, the use of functional ingredients and the use of knowledge in farming – these are some of the trends that are just starting in this region.”