While the forces propelling a wave of mergers and acquisitions in agriculture aren’t unique to the industry, tie-ups among heavyweights – including Dow and DuPont, Monsanto and Bayer and ChemChina and Syngenta – will shape the nature of private equity’s role in distinct ways in the year ahead.
Perhaps the most direct way for consolidation in the broader agricultural industry to impact private equity is through personnel. As the merged companies look internally for efficiencies, many people with long histories and specialized industry knowledge will seek to avoid the headaches that can accompany such efforts and look for opportunity elsewhere. Paine & Partners has already been the beneficiary of this trend, bringing on former Potash chief operating officer David Delaney in September and adding Monsanto biotech veteran Stephen Padgette last month.
Aside from the variety of contacts and knowledge these new hires bring, their perspective on the markets they’ve served will help firms identify appropriate acquisition targets and growth strategies. This knowledge will prove especially valuable in the agtech space, where scanning a wide variety of early-stage, scientifically-complicated candidates requires a discerning eye.
At the other end of the spectrum, attractive acquisition opportunities might come directly from those new hires’ former employers themselves. As the large companies streamline and face regulatory pressure in finalizing proposed mergers, they will look for ways to shed valuable properties and divisions that will prove attractive for private equity. Silverfleet Capital partner Gareth Whiley flagged this possibility to Agri Investor in September, while DuPont’s recent move to sell off its food safety diagnostics division to Warburg Pincus-backed Hygeina could herald a number of similar deals in the year ahead.
While the need to allay anti-trust concerns may spur sales to private equity firms, the internal focus could also complicate natural exits for existing investments in the sector. In previous years, large companies were seen as natural buyers of upstart counterparts that essentially became outsourced research and development operations, but in the year ahead, their internal focus will likely take them out of the market (albeit perhaps temporarily).
The long-term nature of agricultural investments complicates the simple application of a traditional private equity model in the sector. Whether its selecting which crop to grow, land market to tap or new technology to support, agricultural investments often require a long-term time frame that can make an awkward fit for the horizons of most fund structures. In order to continue defining their role within the industry and find value in the year ahead, managers would be well advised to survey the fallout from the creation of agricultural giants with an eye on the future.