Crowe Horwath Webinar
“Trends in Agribusiness M&A”
Douglas G Sterkel
Managing Director
AgriCapital Corporation
July 19, 2011
1
I.
Introduction
II.
Industry Drivers & Agribusiness Market
III. Consolidation Trends
IV.
Mergers and Acquisitions Activity
2
Introduction
AgriCapital is an independent, specialized investment
bank that works exclusively within agribusiness.
 Founded in 1983 to meet the financial advisory needs of
agribusinesses not being met by the traditional investment
banking community.
 Focus and advisory services:
• Mergers, acquisitions & divestitures
• Private placements of equity and debt
• Corporate finance consulting, including valuations
 A member of the Financial Industry Regulatory Authority
(“FINRA”) and a Registered Broker Dealer
Introduction
AgriCapital serves the agribusiness middle and lower middle market.
 Representative Clients
 Transaction Experience*
•
Animal Health & Nutrition
•
Biotechnology
Small-cap and middle market
public companies
•
Crop Inputs
•
•
Crop Protection
Multinational agribusinesses
•
•
Grain and Oilseeds
Private equity & financial sponsors
•
Equipment / Manufacturing
•
Cooperatives
•
Financial Services
•
Precision Agriculture
•
Produce & Vegetables
•
Proteins
•
Seed
•
Turf & Ornamental
•
•
Family owned / privately held
agribusinesses
 Global focus & client base
•
North America
•
Europe
•
Central and South America
•
Australasia & Asia
July 18, 2011
* Does not include all sector experience
AgriCapital - Introduction
Common Themes in Agribusiness : Increased M&A activity &
investment focus.
 Consolidation is occurring across the agribusiness
value chain from “farm to table”.
• Increased globalization
• Increased capital needs
• Increased risks & complexity
• Issues with succession planning
 Capital is flowing into agribusiness from Wall Street,
private equity and hedge funds.
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I.
Introduction
II.
Industry Drivers & Agribusiness Market
III. Consolidation Trends
IV. Mergers and Acquisitions Activity
Industry Drivers
Agribusiness is going through a dynamic period and a
very favorable economic / investment cycle.
 Demand
• Creation of a global middle-class is driving protein
demand
– China, South Asia, & India
• Global population growth
– 9 billion projected by 2050
• Competition for grain
 Supply
• Arable land is limited
• Available water for irrigation is limited
7
Market Reaction to Industry Drivers
Unprecedented interest in agribusiness by Wall Street
and increased M&A activity.
Public Agribusiness Relative Stock Prices
Significant
M&A Activity
Minimal
M&A Activity
Significant
M&A Activity
Source: Capital IQ. Includes data on a basket of public agribusinesses deemed representative by AgriCapital .
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I.
AgriCapital Overview
II. Industry Drivers & Agribusiness Market
III. Consolidation Trends
IV. Mergers and Acquisitions Activity
9
Consolidation Trends
Agribusinesses are consolidating and becoming more global.
 Globalization of agribusiness is escalating
• Companies are seeking economies of scale to
maximize efficiency and take as much cost out of the
system as possible.
– e.g. Agrium and Helena’s numerous purchases of regional crop
input distribution companies.
• Governments seeking “guaranteed and stable” food
supplies for their people.
– e.g. Asian companies, in cooperation with government, developing
relationships with US companies to source US grain.
• Increased sourcing and competition from international
agribusinesses.
10
Consolidation Trends
Capital requirements of agribusiness are increasing dramatically.
 Increasing working capital and debt requirements
are driving M&A activity in certain sub sectors.
• Inventory & accounts receivable
• Margin calls
 Some “local” companies are outgrowing the capacity
of their local banks.
Significant
Increases in working
capital
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Consolidation Trends
The risks and business complexities are rising in agribusiness.
 Risk, and the necessity for the development of risk
mitigation strategies, is driving some M&A activity.
 Lenders are requiring hedging strategies due to the
increased value and volatility of commodities and
inputs.
 Some business owners do not feel comfortable
managing or outsourcing hedging strategies.
12
Consolidation Trends
Many agribusinesses face succession issues & difficulties.
 The average age of agribusiness owners continues to
increase.
 Many business owners do not have descendents that
are willing or capable of managing an increasingly
more complex agribusiness.
 Capital availability of descendents may be limited.
 Problems with divergent and extended shareholders,
sometimes 3 or 4 generations removed from the
business operations.
13
Consolidation Trends
Recent (2010/11) AgriCapital advisory assignments.
Client
Seller/Transaction
Overview
$60 million revenue, profitable, 90+ year old ag
manufacturing company with over 40 3rd and 4th
generation family shareholders and no ability for
family succession. Sold to Kuhn, a subsidiary of
Bucher Industries (Swiss conglomerate).
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Buyer Motivations
• Expansion of global footprint
• Access to dealer network
• Synergistic product lines
$25 million sale (closing 7/22/11) of Digital
Angel’s Destron Fearing animal identification
business to Allflex. Digital Angel faced significant
working capital constraints.
• Growth of business through better
capitalization
• Manufacturing synergies
• Presence in swine and companion
animals
Rapidly growing, profitable, closely held
genomics testing business sold to Neogen.
Owners believed that the business needed
to be consolidated with a larger company
with more global market access to be most
competitive.
• Ability to globalize and expand into
new product area
• Increase profitability through
corporate systems and management
PHC (PHC: LSX – AIM), divested its US product
sales business to Lebanon Chemical. PHC deemed
the business non core to its existing development
strategy.
• Ability to integrate and consolidate
product lines, inventory and
manufacturing.
I.
Introduction
II.
Industry Drivers & Agribusiness Market
III. Consolidation Trends
IV. Mergers and Acquisitions Activity
15
All Industry Transaction Statistics
Total (agribusiness & non agribusiness) M&A deal activity is up in
2011 from the same period in 2010.
 Increased profitability of
operating companies due
to cost cutting.
$1,600,000
14,000
13,000
$1,400,000
12,000
$1,200,000
11,000
$1,000,000
10,000
$800,000
9,000
8,000
$600,000
7,000
$400,000
6,000
$200,000
5,000
$0
4,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2006
2007
Source: CapitalIQ
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2008
2009
Announced Deal Value
2010
2011
Announced Number of Transactions
 Corporations
currently
maintaining
significant
cash positions.
Worldwide Transactions – All Industries
Anoounced Deal Value (Billions)
 Approximately a 25%
increase in deal value
from Q1 and Q2 2010 to
Q1 and Q2 2011.
All Industry Transaction Statistics
8.0x
 Comparing EBITDA multiples is
one of the most common ways
to compare valuations of
companies.
 TEV/EBITDA = Total
Enterprise Value / EBITDA
EBITDA Multiples by Transaction Size
7.5x
7.0x
7.5x
6.5x
6.0x
6.6x
5.5x
6.4x
6.2x
5.0x
4.5x
6.4x
6.4x
6.3x
6.0x
6.0x
5.9x
5.4x
6.6x
6.5x
5.2x
5.3x
5.1x
4.0x
2007
2008
$10-25 mm
$25-50 mm
2009
$50-100 mm
2010
$100-250 mm
Historical Equity and Debt Contribution
 Over the past 5 years, acquirers
have
been
required
to
contribute more equity as
compared
to
debt
when
purchasing companies.
This
generally has effected financial
sponsors more than strategic
operating companies.
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100%
18.30%
13.50%
15.50%
42.40%
44.50%
37.80%
39.30%
42.10%
46.70%
2006
2007
2008
80%
60%
12.70%
10.20%
28.20%
36.50%
59%
53.30%
2009
1H 2010
40%
20%
0%
Equity
Senior Debt
Source: GF Data Resources via GMB
Sub Debt
Agribusiness M&A Transactions
Agribusiness M&A activity is currently robust, as it was in 2007.
Total Agribusiness Transaction Value
By Category
Total Agribusiness Transaction Value
By Year
2005 – 2011 (2nd Qtr.)
2005 – 2011 (2nd Qtr.)
$29,966
$6,107
$43,800
$55,631
Agricultural Products
(Primary)
Fertilizers and
Agricultural
Chemicals (Primary)
Veterinary Drugs
(Primary)
Source: CapitalIQ
($USDMM)
Agricultural
Machinery and
Equipment (Primary)
$50,000
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Announced
Total Closed
Transactions
Source: CapitalIQ
Capital IQ derives its information is from publically announced M&A Transactions and does not include private transactions. Information may also include an announced
transaction that did not close. AgriCapital excluded some significant animal health transactions as the human pharmaceutical component skewed the data.
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Public Agribusiness Valuations
Valuations for public agribusinesses remain favorable.
LTM Multiple
Public Agribusiness TEV/EBITDA Analysis
19
Source: Capital IQ. Includes financial data on a basket of public agribusinesses deemed representative by AgriCapital.
Agribusiness M&A activity
Agribusiness M&A trends - AgriCapital’s perspective.
 Market is generally a “sellers market”
 Global Buyers
• It is necessary to completely canvass all possible global buyers, not
just domestic buyers, to maximize exit prices.
• Nearly every AgriCapital sell side advisory assignment over the past
five years has targeted at least some international buyers.
 Strategic buyers, generally speaking, continue to able
to pay higher prices for acquisitions due to synergies.
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Agribusiness M&A activity
Agribusiness M&A trends - AgriCapital’s perspective.
 The overall buyer due diligence process is getting
more detailed and sophisticated.
 Environmental due diligence has
increased over the past five years.
 Lenders are
discovery.
requiring
more
dramatically
documentation
and
 Many long time business owners without succesion
plans are sensing an opportunity to exit during the
current favorable cycle.
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Private Equity & Agriculture
There is an unprecedented interest in agribusiness by non traditional
financial investors. A new frontier?
 Private equity money and other financial sponsors have activity
entered agribusiness.
•
Over 190 private equity firms globally indicate interest in investing in agriculture.*
•
63 firms are currently raising capital for private equity investments in the sector
with an aggregate target of USD 13.3 billion.*
 Numerous hedge funds and pension funds investing in agribusiness
•
AgriCapital receiving many calls and requests for meetings
•
ETF’s, direct farmland investment, commodity trading
 PE firms are focusing on financial metrics that many agribusinesses
do not normally track.
 How compatible will the shorter (as compared to strategic buyers)
time horizons of financial buyers be with agribusiness?
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*
Source: 2011 Preqin
Conclusion
Consolidation is expected to continue across the agribusiness value
chain from “farm to table”.
Favorable Supply / Demand metrics
Increased globalization
Increased capital needs
Increased risks & complexity
Issues with succession planning
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AgriCapital Contact Information
Douglas G. Sterkel
Managing Director
AgriCapital Corporation
1410 Broadway, Suite 1802
New York, NY 10018
Email: sterkel@agricapital.com
Telephone: (212) 944-9500
www.agricapital.com
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