Off-market deals ‘under threat’ from new Australian regulations

Greater scrutiny on foreign investment is complicating sales of assets that are not publicly advertised, which a blue-chip manager says account for one-fifth of its usual pipeline.

Off-market deals in Australian ag are already under pressure following the introduction of new rules governing foreign investment, according to one asset manager.

The rules, which came into effect on February 1, ensure that any agricultural asset valued at more than A$15 million ($11.5 million; €9.4 million) must go through an “open and transparent” sales process before foreign buyers can take ownership, allowing domestic buyers the opportunity to bid. In practice, this means that sellers must advertise properties for at least 30 days on “channels that Australian bidders could reasonably access.”

Speaking to Agri Investor, Growth Farms managing director David Sackett said that off-market deals where properties are not publicly advertised for sale had already become more difficult.

“If it works for the vendor, why prevent it?”
David Sackett, Growth Farms

“About one in five of Growth Farms’ deals are off-market deals – we basically can’t do any more of those unless they’re under the A$15 million threshold. If it works for the vendor, why prevent it? It looks innocuous on the surface, but we don’t see this happening in any other sector – why agriculture?” he said.

Sackett also noted that the sudden imposition of the new rules last month sent out a confusing message to investors, with Australia’s natural competitive advantage over neighboring New Zealand and other countries potentially under threat.

“It looks bad. It makes the process of setting Foreign Investment Review Board rules look ad hoc and chaotic,” he said. “We’re blessed here, compared with other countries including New Zealand, because we just have a ‘no-disadvantage’ test for foreign investment. Others often require that you demonstrate a net benefit. That’s a real plus for us, but these new rules don’t help.”

Lost opportunity

The long-term priority for Australian agriculture, Sackett argued, was securing capital to survive and grow.

“Too many family farms in Australia are under-capitalized, and there are many examples I can give you where lifting the capital constraints on a farm has raised productivity, by allowing investment, which in turn lifts the local community,” he said.

“Does it really matter where the capital comes from? The biggest long-term threat to a progressive, dynamic and profitable agricultural sector is under-capitalization.”

Growth Farms manages more than A$400 million of agricultural investments for high-net-worth individuals, family offices and institutional clients. It runs Growth Farms Australia Fund I, a 10-year closed-end fund that was established in 2014, and is in the process of developing two more funds.