GONE FISHING

You know when they have a fishing show on TV? They catch the fish and then let it go. They don't want to eat the fish, they just want to make it late for something.

--Mitch Hedberg

Some people, on the other hand, catch lots and lots of fish, and then sell it – all of it, with virtually no waste. We had the privilege a few weeks ago, courtesy of one of our clients in the fishing industry, of touring a state-of-the art factory trawler, or “catcher processor”, just before it left Seattle for the Bering Sea fishing grounds in January. A factory trawler is a ship that harvests groundfish, or bottom feeders, primarily Alaska pollock in this case, and then processes the catch into various end products. End products include fillets; surimi, a pure protein paste; mince, made from imperfect fillets; roe; fish meal, used as animal feed and fertilizer; and fish oil. A big factory trawler is 300 – 400 feet long or more and is capable of catching and processing daily catches measured in hundreds of tons.

To put the numbers in perspective, commercial fish landings in the US in 2013 totaled 9.8 billion pounds or 4.9 million tons. The Alaska Pollock harvest for that same year was 3.0 billion pounds or 1.5 million tons, more than 30% of all fish commercially harvested in the US.

Despite the enormous numbers involved, the Alaska Pollock fishery is one of the most sustainable in the world. Vessels that pursue Pollock in Alaskan waters are regulated by both Federal and State fishing and environmental laws and regulations. Operations are dependent upon total allowable catch, which are set by the National Marine Fisheries Service, and market prices for raw and processed fish. Every pollock catcher/processor vessel carries onboard two federal fishery observers to monitor and record catches and to conduct scientific research.

Our founder’s involvement with fishing and fish processing goes back to the late 1980’s when Adrien managed the appraisals of multiple fish processing plants in Alaska and BC; and a surimi plant in the greater Seattle area. We have appraised two large fishing companies in the last four years. One of these companies owns and operates six fishing vessels with associated fishing rights. The vessels harvest and process bottom fish in the North Pacific and the company then produces frozen-at-sea headed and gutted ground fish, including Pollock, Pacific Cod, Yellowfin Sole, Rock Sole, Atka Mackerel, Flathead Sole, and Pacific Ocean Perch.The second company owns and operates three factory trawlers with associated fishing rights. These vessels operate primarily in the Bering Sea for Pollock and Pacific cod. They also fish in the Pacific Ocean off the coasts of Washington and Oregon for Pacific whiting.

More recently, PVI was involved in negotiations with a major supermarket chain on behalf of a Seattle based fish distributor, in which our client ultimately received a price that was double the initial offer. We have also been involved with industries that are ancillary to and driven by the fishing industry.

For example, a number of years ago our founder managed a team that appraised all of the assets of a Seattle company for a leveraged buyout. That company operated nine vessels, all about 200 ft., LOA, carrying supplies for the fishing industry to Bering Sea destinations and hauling frozen fish from Alaska to Seattle. Very recently, PVI appraised an air freight forwarding company that services the North Pacific fishing industry almost exclusively, as well as a large international seafood processing company.

The valuation of fishing companies can be very complex and are driven by the significant and specific risks and challenges facing the fishing industry, such as:

  • Participants are price takers for commoditized products in an international market. Differentiation is largely through management experience and know-how, efficient vessel utilization and maintenance and focus on throughput and revenue per ton.

  • Participants are regulated by both Federal and State fishing and environmental laws and regulations. Operations are dependent upon total allowable catch, as well as market prices as indicated above. Total allowable catch (TAC) is set by the National Marine Fisheries Service based on scientific data collected for each target species, which determines the quantity of fish and other seafood species that can be safely caught during a given year.

  • Halibut bycatch is an on-going problem for bottom fish fishery. Halibut inevitably are caught along with other bottom fish, such as Pollock. Knowledgeable skippers will avoid this bycatch as much as possible by choosing their fishing grounds carefully. Halibut is a high value fish, so there are strict regulations limiting the amount of Halibut bycatch. Once an operator’s Halibut bycatch quota has been reached, that operator must cease fishing. This is obviously a serious issue, and there are perennial efforts to decrease the bycatch limits.

  • The industry has been facing price pressure for a number of years.

  • Russian Pollock supply can disrupt the industry and introduce quite a bit of volatility into the marketplace.

  • Substantial periodic capital expenditures are required to maintain efficiency in terms of the focus on throughput and revenue per ton.

The foregoing challenges notwithstanding, well managed and well capitalized operators in the fishing industry continue to make very substantial returns on investment. The key factor is management experience and ability and access to capital.

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