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Crowe Horwath Webinar “Trends in Agribusiness M&A”. Douglas G Sterkel Managing Director AgriCapital Corporation July 19, 2011. Introduction Industry Drivers & Agribusiness Market Consolidation Trends Mergers and Acquisitions Activity. Introduction.

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crowe horwath webinar trends in agribusiness m a

Crowe Horwath Webinar“Trends in Agribusiness M&A”

Douglas G Sterkel

Managing Director

AgriCapital Corporation

July 19, 2011

slide2
Introduction
  • Industry Drivers & Agribusiness Market
  • Consolidation Trends
  • Mergers and Acquisitions Activity
introduction
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
introduction1
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

agricapital introduction
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.
slide6
Introduction
  • Industry Drivers & Agribusiness Market
  • Consolidation Trends
  • Mergers and Acquisitions Activity
industry drivers
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
market reaction to industry drivers
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.

slide9
AgriCapital Overview
  • Industry Drivers & Agribusiness Market
  • Consolidation Trends
  • Mergers and Acquisitions Activity
consolidation trends
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.
consolidation trends1
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

consolidation trends2
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.

consolidation trends3
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.

consolidation trends4

Consolidation Trends

Recent (2010/11) AgriCapital advisory assignments.

slide15
Introduction
  • Industry Drivers & Agribusiness Market
  • Consolidation Trends
  • Mergers and Acquisitions Activity
all industry transaction statistics
All 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 Q2 2010 to Q1 and Q2 2011.
  • Corporations currently maintaining significant cash positions.
  • Increased profitability of operating companies due to cost cutting.

Worldwide Transactions – All Industries

Source: CapitalIQ

slide17

All Industry Transaction Statistics

  • 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

agribusiness m a transactions
Agribusiness M&A Transactions

Agribusiness M&A activity is currently robust, as it was in 2007.

Total Agribusiness Transaction Value

By Year

2005 – 2011 (2nd Qtr.)

Total Agribusiness Transaction Value

By Category

2005 – 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.

public agribusiness valuations
Public Agribusiness Valuations

Valuations for public agribusinesses remain favorable.

Public Agribusiness TEV/EBITDA Analysis

LTM Multiple

Source: Capital IQ. Includes financial data on a basket of public agribusinesses deemed representative by AgriCapital.

agribusiness m a activity
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.
agribusiness m a activity1
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 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.

private equity agriculture
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?

* Source: 2011 Preqin

conclusion
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
agricapital contact information
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