Private agribusiness investors stand to benefit from the challenges currently facing their public market counterparts, according to one of the authors of a Boston Consulting Group sector overview released Monday.
Entitled Sowing the Seeds of Recovery, the report details how agribusiness went from being the best-performing industry between 2007 and 2011 to the third-lowest performing among 34 industry groupings measured by total return to shareholders between 2012 and 2016.
Based on an analysis of 40 public companies with at least $1 billion in market capitalization in both developed and developing countries, the report says low commodity prices are the main driver for the change in public agribusinesses’ performance and recommends a “farmer-centric” approach as the key to recovery.
Decker Walker, BCG co-leader of agribusiness and one of the report’s authors, told Agri Investor that private investors can capitalize on challenges facing public agribusiness companies by being bold in their acquisitions and taking the necessary steps to demonstrate the value of new technologies to farmers.
“There is a large, illiquid market of assets that is increasingly coming up for sale, and the usual buyers of those assets – large publicly-traded companies – have less currency in the form of share price to actually go acquire those assets right now,” Walker said. “The depressed valuations and the depressed earnings make a number of public companies less able to embark on large acquisitions at exactly the time they should be doing those acquisitions.”
Walker said the report’s recommendation that public companies take a “farmer-centric” approach also applies to private investors, who may be a in a better position to act on the advice. Many new agricultural technologies fail to clearly demonstrate a dollar-value proposition to farmers, Walker said, and private investors are currently better positioned to invest in the marketing and field trials necessary for those new products and technologies to take hold.
“Wallets are constrained, because of farmer income, and the bar for proving to them that your product is not only better, but is better than a less-sexy alternative [has gone up],” he said, citing as an example the challenge of convincing a farmer to use a new genetically-modified fertilizer as opposed to a more traditional alternative that currently offers a higher return on investment.
“To the extent that private companies are more attuned to the vagaries of the capital market, there is opportunity for them to invest in documenting and showing the impact they can have on the grower’s bottom line,” he said.
Looking ahead, Walker said he expected that private equity will likely continue to be the most active investors in aquaculture and that the ongoing consolidation in the agricultural inputs sector will support an increase in dealflow as proposed mergers continue towards completion.
“The entire industry is changing hands and private equity is a bidder on almost every single one of these assets,” Walker said, citing Blackstone’s reported interest in the agricultural chemicals unit of Platform Specialty Products and Bayer’s reported plans to divest of seed businesses as examples.
“You are going to see a lot of deal activity in the latter half of the year.” Walker said.