CEO of Terra Firma’s CPC on acquisitions

Troy Setter, chief executive of Consolidated Pastoral Company, the Australian beef producer majority-owned by Terra Firma, talks to Agri Investor about the recent Bunda Station acquisition and the firm's acquisition strategy.

Consolidated Pastoral Company (CPC), Australia’s largest beef producer and a portfolio company of UK private equity firm Terra Firma, last week saw off competition from family farming businesses to complete its acquisition of Bunda Station, a 178,800 hectare breeding and growing cattle station, according to Troy Setter, chief executive at CPC.

“We believe that after we made our bid there were some competing bids mainly from family corporates that already held land in the region. There was an offshore family corp and one based in Australia,” he told Agri Investor.

The closure ends a process that took more than 12 months. “We have owned the neighbouring property for many years and were clear with the vendor about 18 months ago that we would be keen to buy him out whenever he was ready and we made an offer six months ago,” Setter told Agri Investor.

The size of the transaction was not disclosed but local reports suggest CPC paid around A$15 million ($11.7 million; $10.3 million) for the property.

While not a specific strategy of CPC, there is likely to be some consolidation with Kirkimbie, the neighbouring cattle station owned by CPC for 28 years, according to Setter.

“Our name is coincidental; we are not a consolidator of properties but we are certainly an active looker for opportunities that could give us scale and opportunities for synergies to manage overheads and give productivity and efficiency,” he said.

When asked if CPC would pay above market value for a neighbouring property Setter said: “We will pay fair value that delivers us a required investment return and is higher than the cost of capital.”

CPC targets property acquisitions in Northern Australia only and has further acquisitions in its pipeline but nothing under offer or contract. Acquisitions are not essential to CPC’s strategy; the firm’s 3-year strategy, introduced in 2014, centres on marketing and operational improvements.

Acquisitions could play a part in part of the firm’s market strategy of getting closer to its customers – feedlots, domestic retailers and abattoirs, said Setter.

“We are focusing on operational excellence, on moving closer to customers and to Asia demand,” he said. “We do have room for expansion, for acquisitions, and we are looking at how to do that with an eye on getting closer to our customers. Our customer focus is very important. We are a strong believer in opportunities for beef in Asia and will look to bolt on acquisitions that add incremental value.”

CPC is targeting 20 percent of sales to come from domestic retailers and feedlots, another 20 percent from building a branded and wholesale China business, another 20 percent from maximising short-term live export into Indonesia and other countries. Between 30 percent and 50 percent of sales are targeted to come from partnerships with abattoirs, according to the website.

On the operations side, CPC wants to increase turnoff by making sure the herd is in the right place at the right time to serve markets, maximising production of each property, improving herd genetics and reducing the age of the herd.

The latter will reduce the cost of capital of growing cattle and allow them to be sold younger, Setter told Agri Investor.

“We don’t want to own cattle for as long so we can increase the speed of turnoff but don’t have the cost of production,” he said. “Young breeding cattle are usually more productive and have more modern genetics,” he added.

CPC’s strategy is monitored closely by Terra Firma, the majority owner that acquired a stake in 2009.

“I find they are very close to the business and have an active interest and role with management in the strategy and business operations,” said Setter. “In a listed beef company you will still have a very interested shareholder but they are not as involved in the day-to-day as Terra Firma is; I really enjoy working closely with them.”

Responding to queries about the sale of a stake in CPC by Terra Firma to external investors, as mooted late last year, Setter responded:

“There is considerable interest in investing up the beef value chain in Australia so CPC and Terra Firma are talking to several parties,” he said, adding that the capital raised could be used for expansion or deals entered into for alignment of interests.

Terra Firma is known to invest for between seven and 10 years and all indications are that the firm will not exit until that point at least, said Setter.

Terra Firma could not comment at this stage, according to a spokesperson.