Presentation on theme: "Crowe Horwath Webinar “Trends in Agribusiness M&A”"— Presentation transcript:
1Crowe Horwath Webinar “Trends in Agribusiness M&A” Douglas G SterkelManaging DirectorAgriCapital CorporationJuly 19, 2011
2Introduction Industry Drivers & Agribusiness Market Consolidation TrendsMergers and Acquisitions Activity
3IntroductionAgriCapital 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 & divestituresPrivate placements of equity and debtCorporate finance consulting, including valuationsA member of the Financial Industry Regulatory Authority (“FINRA”) and a Registered Broker Dealer
4AgriCapital serves the agribusiness middle and lower middle market. IntroductionAgriCapital serves the agribusiness middle and lower middle market.Transaction Experience*Animal Health & NutritionBiotechnologyCrop InputsCrop ProtectionGrain and OilseedsEquipment / ManufacturingFinancial ServicesPrecision AgricultureProduce & VegetablesProteinsSeedTurf & OrnamentalRepresentative ClientsFamily owned / privately held agribusinessesSmall-cap and middle market public companiesMultinational agribusinessesPrivate equity & financial sponsorsCooperativesGlobal focus & client baseNorth AmericaEuropeCentral and South AmericaAustralasia & Asia* Does not include all sector experience
5AgriCapital - Introduction Common Themes in Agribusiness : Increased M&A activity & investment focus.Consolidation is occurring across the agribusiness value chain from “farm to table”.Increased globalizationIncreased capital needsIncreased risks & complexityIssues with succession planningCapital is flowing into agribusiness from Wall Street, private equity and hedge funds.
6Introduction Industry Drivers & Agribusiness Market Consolidation TrendsMergers and Acquisitions Activity
7Industry DriversAgribusiness is going through a dynamic period and a very favorable economic / investment cycle.DemandCreation of a global middle-class is driving protein demandChina, South Asia, & IndiaGlobal population growth9 billion projected by 2050Competition for grainSupplyArable land is limitedAvailable water for irrigation is limited
8Market Reaction to Industry Drivers Unprecedented interest in agribusiness by Wall Street and increased M&A activity.Public Agribusiness Relative Stock PricesSignificantM&A ActivityMinimalM&A ActivitySignificantM&A ActivitySource: Capital IQ. Includes data on a basket of public agribusinesses deemed representative by AgriCapital.
9AgriCapital OverviewIndustry Drivers & Agribusiness MarketConsolidation TrendsMergers and Acquisitions Activity
10Agribusinesses are consolidating and becoming more global. Consolidation TrendsAgribusinesses are consolidating and becoming more global.Globalization of agribusiness is escalatingCompanies 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.
11Increases in working capital Consolidation TrendsCapital requirements of agribusiness are increasing dramatically.Increasing working capital and debt requirements are driving M&A activity in certain sub sectors.Inventory & accounts receivableMargin callsSome “local” companies are outgrowing the capacity of their local banks.SignificantIncreases in working capital
12The risks and business complexities are rising in agribusiness. Consolidation TrendsThe 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
13Many agribusinesses face succession issues & difficulties. Consolidation TrendsMany 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
14Seller/Transaction Overview Consolidation TrendsRecent (2010/11) AgriCapital advisory assignments.ClientSeller/Transaction OverviewBuyer Motivations$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).Expansion of global footprintAccess to dealer networkSynergistic 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 capitalizationManufacturing synergiesPresence in swine and companion animalsRapidly 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 areaIncrease profitability through corporate systems and managementPHC (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.
15IntroductionIndustry Drivers & Agribusiness MarketConsolidation TrendsMergers and Acquisitions Activity
16All Industry Transaction Statistics Total (agribusiness & non agribusiness) M&A deal activity is up in 2011 from the same period in 2010.Approximately a 25% increase in deal value from Q1 and Q to Q1 and QCorporations currently maintaining significant cash positions.Increased profitability of operating companies due to cost cutting.Worldwide Transactions – All IndustriesSource: CapitalIQ
17All Industry Transaction Statistics Comparing EBITDA multiples is one of the most common ways to compare valuations of companies.TEV/EBITDA = Total Enterprise Value / EBITDAOver 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
18Agribusiness M&A Transactions Agribusiness M&A activity is currently robust, as it was in 2007.Total Agribusiness Transaction ValueBy Category2005 – 2011 (2nd Qtr.)Total Agribusiness Transaction ValueBy Year2005 – 2011 (2nd Qtr.)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.18
19Public Agribusiness Valuations Valuations for public agribusinesses remain favorable.Public Agribusiness TEV/EBITDA AnalysisLTM MultipleSource: Capital IQ. Includes financial data on a basket of public agribusinesses deemed representative by AgriCapital.19
20Agribusiness M&A activity Agribusiness M&A trends - AgriCapital’s perspective.Market is generally a “sellers market”Global BuyersIt 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.20
21Agribusiness 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 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.21
22Private 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 agribusinessAgriCapital receiving many calls and requests for meetingsETF’s, direct farmland investment, commodity tradingPE 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
23Conclusion Favorable Supply / Demand metrics Increased globalization Consolidation is expected to continue across the agribusiness value chain from “farm to table”.Favorable Supply / Demand metricsIncreased globalizationIncreased capital needsIncreased risks & complexityIssues with succession planning
24AgriCapital Corporation AgriCapital Contact InformationDouglas G. SterkelManaging DirectorAgriCapital Corporation1410 Broadway, Suite 1802New York, NY 10018Telephone: (212)