Exclusive: ADM eyes aquaculture ahead of second close on debut ag fund

The firm is set to complete two deals ‘in the short term’ as it progresses towards a $500m final close in March or April next year.

ADM Capital has completed its debut investment via the Cibus fund, its first vehicle dedicated to agribusiness.

The firm spearheaded the $34 million Series D fundraise for AeroFarms, a vertical farming company headquartered in New Jersey. New investors in the business also include AllianceBernstein and Meraas Holding, the investment vehicle of Mohammed bin Rashid Al Maktoum, Emir of Dubai.

ADM’s $11.25 million capital injection comes ahead of a second close on Cibus, which the firm is targeting by the end of 2017. The firm sealed a first close in May on $100 million. It is aiming to hold a $500 million final close on the vehicle in March or April next year, Agri Investor understands.

The deal forms part of Cibus’s early-stage investment mandate, to which 10 percent of the fund is allocated. The rest is earmarked for investments in mid-market companies with an EBITDA greater than $3 million, which the firm will hold for between four and six years with an IRR target of between 20 percent tand 25 percent.

ADM expects to close another two deals “in the short term,” Alastair Cooper, the firm’s head of early-stage investments, told Agri Investor. Though he did not disclose the sectors targeted, he was especially enthusiastic about aquaculture and ‘recirculating aquaculture systems,’ which he described as “an aquatic version of vertical farming.”

“The whole system can now be controlled and optimized in an incredibly efficient way with very minimal water use,” he said, adding that he had been particularly impressed by his recent visit to a fish farming facility in the Israeli desert producing 2,500 tons of seabreams a year.

“We’re focusing on how to invest in that space. At the moment, we’re talking with genetics companies, egg companies, businesses that provide some of the specific technologies that control filtration systems. We’re looking at the production side itself and we’re looking at investing in the processing and downstream side to the retailer as well.”Cibus focuses on companies with an EBITDA of between $5 million and $20 million, a segment of the market where enterprise value to EBITDA multiples tend to range from six to 10 times, Cooper explained. He argued that this placed the fund at a deal size below that targeted by generalist private equity houses and big corporates, where EBITDA multiples often reach double digits.

Noting that Cibus was now working on building an international investor base, he said the fund had already met solid interest in the US. “Everyone gets how fast technology is moving, and they get how technology being applied to food production makes a hell of a lot of sense.”

Cooper observed that this was the very thesis behind Cibus’s investment in Aerofarms. Though born more than 15 years ago, the vertical farming sector has become profitable of late thanks to big progress in LED lighting, with a price-to-efficiency ratio reduced 65 times over the past seven years, he said.

About 85 percent of all salad leaves eaten in New York are currently produced in open fields in California’s Salinas Valley, he noted, requiring treatment and seven to 10 days of transport to bring them to East Coast retailers. In contrast, Aerofarms’ Newark facility is able to deliver to New York clients in a matter of hours, he said, while reducing water consumption by 95 percent and nutrient use by 80 percent.

“Because of the optimized environment that aeroponics produces, the plant life cycle is reduced to just 16 days, which allows them to get 25 or 26 crops a year,” he explained, adding that Aerofarms would look to broaden its product range, adding fruits, other plants, vegetables and nutraceuticals to its menu.

The company is also planning to expand overseas, having already signed contracts to build facilities in both China and the Middle East and raised money from investors based in those markets, he concluded.

“Aerofarms’ international rollout will be based on a royalty licence model, so for all intents and purposes it will be a technology capabilities company rather than a production farming company per se. And that business model is something that excites us.”