May 18, 2015
A slew of activity is sprouting up in the farm and agricultural space. Now that neighborhood retailers and supercenters alike are offering grocery options, these big-name retailers – GroceryWorks operator Safeway, Inc. (NYSE: SWY), Wal-Mart Stores (NYSE: WMT) and Kroger Co. (NYSE: KR) – are looking for a year-round, multi-product supplier, explaines Michael Butler, CEO of Cascadia Capital, an investment bank that advises farm and agriculture companies.
The direction that the industry is headed will “further drive the need to scale. The mid-sized companies who cannot make the capital investments to meet the needs of customers, will need to partner or sell to compete in the future,” he says.
A tremendous amount of deal flow is expected in the relative near term, Butler adds. So far in 2015, several transactions have been announced underscoring the continuing land grab of farm assets and agricultural companies as prices for these properties continue to slide.
LandFund Partners, in February, launched its second private investment fund with more than $5 million in commitments. Nashville, Tennessee-based LandFund develops and manages closed-ed private equity funds that acquire row crop farmland in Arkansas and Mississippi. Fund II has agreed to buy farmland of about 2,500 acres near Helena, Arkansas. Fund I accepted $7 million in capital commitments.
More recently, in March, Farmland Parners Inc. (NYSE: FPI) agreed to buy three farms in Nebraska and Colorado in a cash and stock deal. Also in March, Pervasip acquired a 90 percent interest in Canalytix LLC, a Denver-based developer of agriculture monitoring and controlling software, in exchange for the issuance of Pervasip common shares and preferred shares.
Together, the farms total 2,592 acres andproduce row crops, which are crops planted in rows that can be tended to by machinery. Farmland Partners is paying $16.6 million in cash plus 63,581 shares of common stock and $2.7 million in units of limited partnership interest in its operating partnership, Farmland Partners Operating Partners LP. Farmland’s stock was trading at around $11.74 at closing on April 1.
The buyer plans to lease the farms back to the sellers or other thid-parties. The Denver-based company owns and acquires row crop farmland in North American agricultural markets. The buyer owns 91 farm in Illinois, Nebraska, Colorado, Arkansas, Louisiana, Mississippi and South Carolina, and has another five farms under contract in South Carolina, Arkansas, Nebraska and Colorado.
In another recent farm-related deal, land O’lakes bought agribusiness marketing company Farmer Lumpe + McCelland. Each deal underscores how the industry has grown due to overseas demand and technology improvements on the production side. However, achieving scale is costly. Between land acquisitions, planting new crops and utilizing new technology, companies in the sector not require more large capital expenditures to compete than they did in the past. As a result, expect private equity firms, flush with cash to pursue targeted sales processes, Butler says.
“PE is definitely interested and is actively trying to get to these companies,” he adds. “they see a sector that is at a tipping point and ready to go through a consolidation phase.”