Deal Summary
Mergence Investment Managers Lesotho (Mergence) has completed its acquisition of Sanlei Premium Trout (Sanlei), the largest trout farming company in southern Africa. Mergence purchased the remaining 51% of Sanlei shares from One Thousand & One Voices (1K1V), an Africa-focused private equity firm backed by family offices and prominent families. 1K1V acquired a controlling stake in Sanlei in 2017 before selling an undisclosed portion (estimated at 49%) to Mergence in 2019. Following this latest buyout, Mergence plans to expand Sanlei’s export operations, targeting new markets in the European Union and the Far East. Mergence’s investment in Sanlei is part of its private equity portfolio, managed on behalf of the Public Officers Defined Contribution Pension Fund (PODCPF) in Lesotho. With $700 million in assets under management, PODCPF is Lesotho’s largest pension fund, accounting for two-thirds of the country’s pension assets and representing the primary domestic investor in private equity.
Terms
- Fund Managers: Mergence Investment Managers Lesotho
- Deal Type: Buyout
- Target: Sanlei Premium Trout
- Equity Stake: 51% (achieving 100% ownership)
Deal Rationale
This transaction represents 1K1V’s first full exit in Africa, marking a key liquidity event as it aims to return capital to Limited Partners (LPs). Established in 2013, 1K1V has completed over ten African investments, with this exit reinforcing its African portfolio strategy. For Mergence, the Sanlei acquisition aligns with its corporate strategy and Environmental, Social, and Governance (ESG) priorities. Sanlei is a unique asset in Mergence’s private market portfolio, which has traditionally focused on infrastructure projects, including South Africa’s first water concession company. Mergence has outlined plans to diversify its sectoral investments, prioritising food security. Having first supported Sanlei in 2020, Mergence’s decision to double down through a full acquisition is a sign of the success of this diversification strategy. The Sanlei acquisition also aligns with Mergence and the PODCPF’s preference for in-country private equity investments to boost investment in the domestic economy.
- Market Opportunity: As the largest trout farm in Southern Africa, Sanlei already has the licence and physical infrastructure capacity to supply the bulk of the South African rainbow trout market. With export growth as a priority, the company is set to capitalise on expanding markets in the Far East and the European Union. The global aquaculture industry, forecasted to grow at a 6.5% compound annual growth rate (CAGR), is expected to reach $340 billion by 2030, representing an attractive global market opportunity. Key drivers of this growth include increasing demand for sustainable seafood, population growth, and rising health consciousness among consumers. The Far East, in particular, represents a vast and untapped market with a rising middle class and increasing disposable incomes, driving demand for high-quality, sustainably sourced seafood. The European Union’s stringent sustainability standards further bolster Sanlei’s market appeal. The company’s recent attainment of Best Aquaculture Practices (BAP) certification aligns with these regulatory requirements, facilitating smoother market entry and compliance. Sanlei’s strategic positioning is further validated by its recent appointment as a permanent supplier to one of the largest FMCG retailers in the USA, boasting a nationwide footprint of over 2,000 stores. This significant contract highlights Sanlei’s capability to meet high-volume, quality-centric demands, ensuring a stable and expanding revenue stream. This partnership diversifies Sanlei’s customer base and enhances its reputation in the global market, paving the way for further international expansion. Furthermore, the robust global aquaculture demand is juxtaposed by dwindling natural fish supply, with a 2020 Ocean and Coastal Fishing and Fish Farming in South Africa report revealing declines in natural fish resources. This trend reinforces the importance of sustainable aquaculture practices and positions Sanlei as a critical player in ensuring food security and meeting the growing global appetite for premium seafood products.
- Risk/Return Analysis: Mergence intends to secure additional capital to support Sanlei’s planned export growth, targeting an increase in production from 1,200 tonnes in 2023 to 2,500 tonnes by 2026. While a growing export market supports these ambitions, potential financing challenges could hinder Sanlei’s expansion and limit Mergence’s upside from this acquisition. This financing risk is accentuated by growing uncertainty over the PODCPF, the primary financial backer of the private equity fund Mergence manages. The pension fund is currently mired in a public corruption scandal, with a recent parliamentary assessment by the Public Accounts Committee (PAC) concluding that only 2 out of 11 trustees of the PODCPF can be certified as “fit and proper” to oversee the pension fund. The PAC also queried the trustees’ decision to install Akani Fund Administrators as the new fund administrator in place of NBC Holdings, an independent and long-time administrator of the fund. Mergence has previously been caught in the crosshairs of institutional instability at the PODCPF. They were given a mandate to develop a five-star hotel as part of the portfolio they manage for PODCPF, but the project was later cancelled even after Mergence had incurred some costs. These institutional risks associated with the primary financial backer of the private equity fund invested in Sanlei are particularly problematic given the financing plans flowing from Mergence’s full acquisition.
About the Fund Manager
Operating in Lesotho since 2015, Mergence Investment Managers Lesotho (Mergence) is a subsidiary of the Mergence Investment Managers, an asset manager that invests in public and private markets in Southern Africa. Mergence is a licensed financial services provider registered and regulated by the Central Bank of Lesotho. The fund began by investing primarily in unlisted assets, before extending its product range to offer access to Mergence Investment Managers South African unit trusts under the collective investment schemes, hence granting access to additional vehicles to individual investors to save for their future. The wider group has more than R35 billion in assets under management and sold a 46% ownership stake to Harith General Partners, a Pan-African infrastructure investor, in 2023.
