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Crowe Horwath Webinar Trends in Agribusiness M&A Douglas G Sterkel Managing Director AgriCapital Corporation July 19, 2011 1.

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Presentation on theme: "Crowe Horwath Webinar Trends in Agribusiness M&A Douglas G Sterkel Managing Director AgriCapital Corporation July 19, 2011 1."— Presentation transcript:

1 Crowe Horwath Webinar Trends in Agribusiness M&A Douglas G Sterkel Managing Director AgriCapital Corporation July 19,

2 I. Introduction II.Industry Drivers & Agribusiness Market III. Consolidation Trends IV. Mergers and Acquisitions Activity 2

3 Introduction 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 AgriCapital is an independent, specialized investment bank that works exclusively within agribusiness.

4 Introduction Representative Clients Family owned / privately held agribusinesses Small-cap and middle market public companies Multinational agribusinesses Private equity & financial sponsors Cooperatives Global focus & client base North America Europe Central and South America Australasia & Asia AgriCapital serves the agribusiness middle and lower middle market. Transaction Experience* Animal Health & Nutrition Biotechnology Crop Inputs Crop Protection Grain and Oilseeds Equipment / Manufacturing Financial Services Precision Agriculture Produce & Vegetables Proteins Seed Turf & Ornamental * Does not include all sector experience July 18, 2011

5 AgriCapital - Introduction 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. Common Themes in Agribusiness : Increased M&A activity & investment focus. 5

6 I. Introduction II. Industry Drivers & Agribusiness Market III. Consolidation Trends IV. Mergers and Acquisitions Activity

7 Industry Drivers 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 Agribusiness is going through a dynamic period and a very favorable economic / investment cycle. 7

8 Market Reaction to Industry Drivers Unprecedented interest in agribusiness by Wall Street and increased M&A activity. Source: Capital IQ. Includes data on a basket of public agribusinesses deemed representative by AgriCapital. Public Agribusiness Relative Stock Prices Significant M&A Activity Significant M&A Activity Minimal M&A Activity 8

9 I. AgriCapital Overview II. Industry Drivers & Agribusiness Market III. Consolidation Trends IV. Mergers and Acquisitions Activity 9

10 Consolidation Trends 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 Helenas 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. Agribusinesses are consolidating and becoming more global. 10

11 Consolidation Trends 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. Capital requirements of agribusiness are increasing dramatically. Significant Increases in working capital 11

12 Consolidation Trends 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. The risks and business complexities are rising in agribusiness. 12

13 Consolidation Trends 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. Many agribusinesses face succession issues & difficulties. 13

14 Client Seller/Transaction Overview Buyer Motivations $60 million revenue, profitable, 90+ year old ag manufacturing company with over 40 3 rd and 4 th generation family shareholders and no ability for family succession. Sold to Kuhn, a subsidiary of Bucher Industries (Swiss conglomerate). Expansion of global footprint Access to dealer network Synergistic product lines $ 25 million sale (closing 7/22/11) of Digital Angels 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. Consolidation Trends Recent (2010/11) AgriCapital advisory assignments. 14

15 I. Introduction II.Industry Drivers & Agribusiness Market III. Consolidation Trends IV. Mergers and Acquisitions Activity 15

16 All Industry Transaction Statistics Worldwide Transactions – All Industries Total (agribusiness & non agribusiness) M&A deal activity is up in 2011 from the same period in Source: CapitalIQ Approximately a 25% increase in deal value from Q1 and Q to Q1 and Q Corporations currently maintaining significant cash positions. Increased profitability of operating companies due to cost cutting. 16

17 Comparing EBITDA multiples is one of the most common ways to compare valuations of companies. TEV/EBITDA = Total Enterprise Value / EBITDA 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. Source: GF Data Resources via GMB All Industry Transaction Statistics 17

18 Agribusiness M&A Transactions Agribusiness M&A activity is currently robust, as it was in 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. Total Agribusiness Transaction Value By Category 2005 – 2011 (2 nd Qtr.) Total Agribusiness Transaction Value By Year 2005 – 2011 (2 nd Qtr.) 18

19 Public Agribusiness Valuations LTM Multiple Valuations for public agribusinesses remain favorable. Source: Capital IQ. Includes financial data on a basket of public agribusinesses deemed representative by AgriCapital. Public Agribusiness TEV/EBITDA Analysis 19

20 Agribusiness M&A activity 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. Agribusiness M&A trends - AgriCapitals perspective. 20

21 Agribusiness M&A activity The overall buyer due diligence process is getting more detailed and sophisticated. Environmental due diligence has dramatically increased over the past five years. Lenders are requiring more documentation and discovery. Many long time business owners without succesion plans are sensing an opportunity to exit during the current favorable cycle. Agribusiness M&A trends - AgriCapitals perspective. 21

22 Private Equity & Agriculture 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 ETFs, 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? * Source: 2011 Preqin There is an unprecedented interest in agribusiness by non traditional financial investors. A new frontier? 22

23 Conclusion Favorable Supply / Demand metrics Increased globalization Increased capital needs Increased risks & complexity Issues with succession planning Consolidation is expected to continue across the agribusiness value chain from farm to table. 23

24 AgriCapital Contact Information Douglas G. Sterkel Managing Director AgriCapital Corporation 1410 Broadway, Suite 1802 New York, NY Telephone: (212)


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