Oaktree Capital Management’s $1.7 billion exit from Agro Merchants Group came after a “very aggressive” inbound offer from Americold, one of the largest players driving significant consolidation across controlled temperature storage markets, an industry source told Agri Investor.
“They knew they did not want to get into an auction process,” the source said of Americold’s approach to the acquisition announced October 13. “They put their best foot forward and proved it by demonstrating it and signing on it.”
New York Stock Exchange-listed real estate investment trust, Americold, said in a statement the addition of Agro’s network of 236 million cubic feet of refrigerated storage space, spread across 46 facilities in 10 countries, constituted its “strategic entry” into Europe.
“It’s a consolidating market and it’s a market that has not really been invested in like the US has been over the past 10 years,” the source said of Europe, where Agro’s network is the third largest and includes facilities in Poland, the Netherlands, Portugal and elsewhere.
“There is plenty of M&A opportunities over there [in Europe] and they were just locked out because they did not have a beachhead.”
A January report from consultancy EY detailed how the increasing complexity of the global food supply chain was helping to attract investors’ attention to the steady cashflows of cold storage. It described how Agro, Americold and their larger, privately owned peer Lineage Logistics had been driving consolidation in the industry that had been especially rapid since 2017.
In its statement, Oaktree managing director Zach Serebrenik highlighted that the firm was retaining a “meaningful” equity position in Americold. Oaktree’s compensation in the deal includes $554.3 million in Americold common shares, which listed at approximately $17 per share in January 2018. It closed at $37 per share on October 15. The firm and Agro management have agreed to hold the shares until at least May 2021.
In addition, Americold will provide $519 million in cash and assume $110 million in Agro capital lease and sale leaseback financing obligations.
The deal also includes Agro’s 22.1 percent stake in Comfrio Solucoes Logisticas – a joint venture with Sao Paulo-headquartered Aqua Capital that operates a network of 13 cold storage facilities in Brazil – and options on related assets in Brazil and Chile.
Oaktree’s initial interest in cold storage came after an unexpected opportunity to examine financial information for a company in the market, Agri Investor‘s source explained.
“It was just eye opening; how well the business did through the recession at that time, the free cashflow conversion, the stability, all of the things that we all look for,” the source said. “From a valuation perspective, these things own the real estate, they are irreplaceable, very high barriers to entry and it is very tough for people to displace them if they are doing a decent job with their customers.”
After an initial investment of $300 million in 2013, Oaktree carried out more than 20 transactions to establish the network that has been acquired by Americold. Research into trade flows for specific protein and perishable commodities led to a focus on future growth through ports in New Jersey and Rotterdam, the source explained, which led to a string of deals linked by their complimentary facilities and resulting relationships.
“Every subsequent acquisition – it had to stand alone to be interesting – but they had to add to the network in some form or fashion, there had to be some link,” they said.
Though recent attention to food supply chain resiliency would have likely helped entice a broad range of potential buyers had Agro’s portfolio been offered through a formal sales process, the source speculated, most potential private equity, infrastructure, pension or sovereign wealth fund buyers would have been at a disadvantage nonetheless.
“They would still not be able to get there relative to the strategic acquirers, just because they do not have the size and the scale and synergies,” said the source. “While they would say all of the right things and you would have more parties involved, I don’t think the outcome would be any different.”
Oaktree declined to comment.