In the first deal from its Rural Opportunity Fund, Illinois-based private equity firm Open Prairie has extended a $5.2 million loan to Michigan’s Tillerman Seeds.
Tillerman, a holding company established last year to acquire regional seed companies with non-GMO product lines, used the credit facility to support its acquisition of Wisconsin-headquartered Legacy Seeds for an undisclosed price.
Legacy was founded in 1999 and focuses on the provision of non-GMO alfalfa seeds, as well as seeds for other crops including corn, soybeans, wheat, cover crops and turf blends.
Open Prairie reached a $55 million first close on the Open Prairie Rural Opportunity Fund, which is registered with the USDA as a Rural Business Investment Company, in January.
Jim Schultz, the firm’s founder and managing partner, told Agri Investor the vehicle has raised $75 million to date. The firm expects the fund will hit its target of $100 million sometime in the third quarter, though uncertainties surrounding tariffs and agriculture’s role in ongoing trade disputes has slowed fundraising by making some strategic investors and family offices cautious, he said.
Schultz stressed the political nature of such concerns, highlighting that, despite widespread attention to the reduction of US soybean exports to China, prices and total export levels have remained largely unchanged.
In addition, he observed, many in the market are overlooking that similar trade disputes in the past have tended to last a year or less.
“We’re playing more of a long-term game here,” Schultz said. “We have a 10-year life fund that is going to run until the end of the next decade. Our view is that our thesis still holds true and may create even better opportunities in the short term, if the trade wars do get some legs, in that we will have maybe some quasi-distressed opportunities.”
The Rural Opportunity Fund targets a 15 percent annual IRR through debt and equity investments in late-stage companies engaged in crop protection, ingredients, processing, storage and data sub-sectors. Its limited partners include commercial and community banks, family offices, Farm Credit institutions and others.
The seeds sub-sector is currently supported by three important macro trends, Schultz said, highlighting the generational transitions bringing about changing operations on many US farms, consolidation among large input producers and the premiums enticing producers towards steps to increase their non-GMO offerings.
In October, Tillerson carried out its first acquisition, of DF Seeds, which specializes in wheat and soybean seeds designed for the microclimate of Michigan.
“Combined with its recent purchase of DF Seeds, Tillerman has created a rural Midwest-based seed company with operations in Michigan, Wisconsin and Idaho that will generate $40 million in annual revenues and supply products to more than 800 farms,” Open Prairie said.
Schultz, whose family previously operated and sold a proprietary soybean business with operations in both North and South America, said Tillerman’s management told him they selected Open Prairie’s offer over a less expensive competitor because of the firm’s familiarity with the business. Specifically, he said, Tillerman management told him the other investors had suggested Tillerman dismantle its farmer/dealer network in favor of a more efficient sales strategy.
Schultz explained that regional seed suppliers often work with a farmer/dealer networks that coordinate with sales staff to increase use of their products. Usually, he noted, such social networks of farmers are the conduits for information such as a seed’s performance and characteristics, but some investors encouraged a move away from using them as they have entered the market in recent years.
“Farmers buy from farmers, which is why, in a nutshell, that business model works well.”