The Australian agribusiness sector has long been considered among the finer cuts in the commodity market and 2023 presents a rare opportunity for investors.
As the market cools off the back of skyrocketing prices, producers are looking to firm up their business’ future by becoming investor ready, namely, cutting the fat without slicing off value.
It means businesses are taking stock and considering next moves, as they weigh up the pros and cons of raising private capital, attracting a strategic investors or selling outright.
In this year’s PwC Australia Agribusiness M&A Outlook, we focused on the five steps a business must take to become ‘investor ready’ – but for buyers, this guide creates a playbook for finding the diamond in the rough.
Pass on costs, protect profit margins
Identifying which businesses can pass on costs, while protecting their profit margins, will be key for any investor in the sector. With forecast high global food prices until late 2024, further supply chain woes and higher input costs on the cards, the ability to offload costs to customers will become a major selling point, particularly with legacy private businesses likely to sell or pass to the next generation within the next five years.
ESG is non-negotiable
It should come as no surprise that strong environmental, social and governance credentials should be at the top of your investor checklist, with organizations that embed ESG into their strategies able to achieve superior valuations and a more sustainable future.
Environmental management, including greenhouse gas emissions, water use and biodiversity impacts, along with climate risk, animal welfare and wage trust compliance are non-negotiables for stakeholders who now demand businesses demonstrate clear steps towards achieving ESG best practice.
Technology is key, but don’t fly blind
Our outlook also shows that efficiencies achieved by using technology will help outfits stand out from the crowd, but it’s crucial that as an investor you don’t ignore potential.
Innovations in precision agriculture and robotics are transforming Australian agricultural practices, but many are yet to commit to major automation reform. Those who can pick up a bargain ripe for a major tech shake-up, will do well in the long run.
Play to your strengths
While the competition is fierce, we found aligning with a business’ growth horizon helps to create the perfect match. International pension funds and agri-focused investment funds are aggressively seeking further investments, particularly with significant scale and tangible asset backing.
Global and domestic strategic players are also in the mix seeking synergies and typically providing the highest valuation. Private equity can distinguish itself with a partner model, which helps transition key person risk and provide future upside for vendors.
So while we’ve labeled 2023 an agribusiness sellers market, the opportunities are aplenty for shrewd investors who want to plough into the Australian market. Just make sure you choose your cut wisely and remember there’s potential to add seasoning for extra value.
Kosta Kangelaris and Jaclyn Hope are partners in PwC’s M&A Food and Agribusiness Advisory Business