Australian ag moves ‘from survive to thrive’ post-covid: Oxley Capital Partners

Ben Craw, MD at Oxley Capital Partners, says investors have a positive view that many businesses will return to pre-covid revenue levels soon, if they have not already done so, which is fueling activity.

The market for Australian agribusiness has shifted “from survive to thrive” as the post-covid recovery picks up pace, said Oxley Capital Partners managing director Ben Craw.

Craw told Agri Investor his firm had seen many operators chasing capital for growth or transformation. Oxley Capital provides corporate advisory services in areas including capital raising, strategic reviews, corporate due diligence and restructuring.

“There’s definitely been a shift in the market. Last year, a lot of businesses saw their revenues or earnings somewhat impacted, especially if they had exposure to food service or retail,” he said.

“That really had a big effect in turn on their enterprise values, or for founder-led businesses, on equity valuations.”

Craw said his firm has worked extensively with businesses to assess unlisted asset valuations and ensure appropriate metrics were used to judge businesses when raising capital, especially when coming up with defendable valuations based on pre-covid revenues for businesses expected to see a rebound after the pandemic.

“The investment market is taking a more positive view that earnings and revenue are starting to return to pre-covid levels given the momentum in the market,” he said.

“So, now operators are asking: how can we ensure that we are as efficient as possible from a balance sheet point of view? And what other opportunities might there be in the market?

“Folks might not have the war chest to go and acquire assets, for example, so they ask whether they might need to seek a private equity partner. Or for a founder-led, high-growth business that is chasing capital for growth, they might not want equity investment to give up the farm too early, so that’s where we’re seeing more conversations around private debt.”

This has contributed to a lot of activity in the market, with most market sources commenting to Agri Investor in recent weeks that dealflow and demand for assets remains very strong.

“A lot of strategies were, frankly, put on hold in 2020 – whether they were looking to buy or sell assets, or whatever else. So, there’s a lot of pent-up demand in the pipeline and a lot of work to partnering up those opportunities with the right sources of capital,” Craw said.

“There are deep pools of capital in the market across various sources, including both equity and debt. That, coupled with favorable exchange rates and commodity prices, will fuel a lot of activity.”

Despite this, it has been difficult to raise capital at times over the past 12 months, Craw said, particularly when targeting overseas investors who might not be familiar with the assets on the ground.

Research published last month by Natural Capital Economics and AgriFutures argued that Australia could face a “capital drought” in agriculture, as the sector requires A$8.7 billion ($6.7 billion; €5.6 billion) a year to reach a government-backed target of A$100 billion in annual farmgate revenue by 2030. The average annual net investment in productive capital in the sector has been just A$1.2 billion over the past 30 years, the report found.

“It’s been difficult to attract capital into private asset because of the nuances with covid – and that’s not border restrictions, it’s more the impact on earnings and revenue, and the increased due diligence being done on earnings and underlying assumptions.

“Even though there are deep pools of capital chasing these opportunities, including locally, investors want to have line of sight of those future earnings.”