Focus Banking: precision agri deal potential

Focus Investment Banking, the mid-market corporate finance and M&A-focused investment bank, has identified 87 private companies that offer precision farming agriculture products and services. And Eric Oganesoff, managing director, predicts that one-third of the list will be acquired in the next 12 months.

“I think that a third of the list will be bought over the next year as consolidation deals. There are a number of companies that have been put together by farmers and growers with a background in computer science but they are very small and they may get squeezed out over time. Private equity firms may also be involved in this process,” Oganesoff told Agri Investor.

The agriculture technology market focuses on precision agriculture for the most part whether it’s the development of data services enabling farmers to better understand how to use their resources to their best ability, or drone technology to reduce labour costs and increase accuracy. Each method of precision agriculture will require different parts and different technologies to work. Sensors are needed on the farmland, for example, to gather data, while cloud-based services are needed to store the data.

Of the 87 companies identified, 50 offer software products, 44 develop and sell hardware, 36 claim to provide a cloud service and 24 offer sensor equipment. For a list of the companies please download Focus Banking’s special market report here.

Agriculture technology’s real potential came into the spotlight last October when agriculture behemoth Monsanto bought The Climate Corporation for $930 million. Climate Corp is a weather data and technology company; Monsanto described data science as “the agriculture sector’s next major breakthrough” at the time of the deal.

“The Climate Corp acquisition by Monsanto last autumn was a huge deal and crystallised the view that things are really happening in this industry,” said Oganesoff. “And a lot more will be happening as competitors carve our differentiated solutions and start to compete with some of the big guys.”

Focus has yet to arrange any mergers and acquisitions or corporate finance deals within this group of private companies in the precision agriculture sector but expects it will in the coming months.

“We are talking to a lot of companies, private equity groups and corporates globally and there is a lot of interest but we have not seen any deal flow yet,” said Oganesoff. “It seems many investment firms and corporates are working out how to make a play but have not concluded where to place a bet. Are the companies strong enough? Do the management team know they are doing? And so on.”

The industry is also not yet fully matured as companies are still researching the sector and how to best add value through technology and services.

“Data firms soon realised the value in providing farmers and growers with data about their production but I don’t feel that the industry has yet figured out how to present it in an easy-to-consume way for the farmer using a modern interface,” he added. “Some existing agriculture companies such as tractor producers are also considering extending their product line into precision agriculture perhaps to address small to medium sized farms instead of just large ones.”