This investment case study was originally published by the Southern African Venture Capital and Private Equity Association

By Chito Siame, investment principal, Mergence Investment Managers

Pre-pandemic, Mergence Investment Managers acquired a significant minority interest in Sanlei, an integrated aquaculture producer of Africa’s largest sushi-grade trout, primarily for export to Japan and South Africa. The word “Sanlei” is loosely translated from Japanese as “where the mountains meet the sky”.

As a commercial-scale rainbow trout farm, Sanlei is located on the edge of the Katse Dam in the remote highlands of Lesotho; a site known for its deep, pristine waters and highly favourable environment for growing premium trout.

The company has successfully farmed rainbow trout for the South African market over the past 12 years and has the licence and physical infrastructure capacity to supply the entire South African rainbow trout market.

In Japan, Sanlei has a strategic marketing and distribution agreement with co-operative grocery chain Japan Co Ltd which has more than 4,000 stores and is Japan’s second largest joint procurement supermarket chain. Sanlei can attract other potential customers, particularly in the European Union, should it scale up its operations.

The investment sits in Mergence’s Lesotho Private Equity Fund, whose main investor is the largest pension fund in Lesotho. Capital restructuring of Sanlei was undertaken by co-investor, One Thousand & One Voices, a private family capital fund backed exclusively by industry-leading families, largely from America.

The investors are in the process of deploying expansion and working capital to increase standing bio-stock in preparation for upscaling Sanlei’s exports destined for the Far East market. Supplier credit allowed the company to supplement its trade cycle funding requirements as well as support the growth of the business as it successfully navigated the Covid-19 pandemic.

The company measures various water parameters including phosphorus and oxygen levels at regular intervals to remain within set sustainable limits for healthy water bodies. Rigorous requirements are adhered to, in order to minimise disease outbreaks and antibiotic use.

A special feed formula adheres to strict limits to minimise the use of wild fish as an ingredient for feed. Despite fish being farmed at low densities (around 7 kg per cubic metre) to reduce stress on the fish, Sanlei was sustainably farming 800 tonnes of product in 2020 and 2,022 tonnes in 2021.