Ospraie leads $75m recapitalization for biopesticide company after share price collapse

Founder Dwight Anderson tells Agri Investor that Marrone Bio Innovations can benefit from the firm’s wide agricultural network as farmers increasingly adopt the company's pest-control products.

Ospraie Management, a commodities-focused asset management firm headquartered in New York, has completed a $75 million private placement and debt refinancing for Marrone Bio Innovations, a NASDAQ-listed provider of agricultural biopesticides.

National Securities acted as placement agent for the transaction, which is structured as an investment of $30 million and the conversion of $45 million in existing debt to equity. The deal leaves Ospraie with a 30 percent stake in the company, a source told Agri Investor.

Headquartered in Davis, California, MBI offers pesticides for crop protection and a bio-stimulant for crop enhancement that are derived from micro-organisms collected from flowers, insects, soil and compost. Founded in 2006 by Pamela Marrone, who later led its IPO, the company makes about 70 percent of its sales to conventional farmers. It sells seven products under proprietary brands that include Regalia, Amplitude and others.

Fraud fallout

Ivan Saval, National Securities’ managing director for food and agribusiness, told Agri Investor that the significant decline in MBI’s stock from a high of $19.09 per share in October 2013 to a low of $0.64 per share in June 2016 was, in part, a result of a fraud committed against the company by one of its former senior officers. Saval, who led the Ospraie transaction, said the officer had been misreporting revenue, prompting internal and SEC investigations and a class-action lawsuit by shareholders that cost the firm $17 million.

Waddell & Reed, a Kansas-headquartered asset manager that had been MBI’s largest investor, extended a $40 million loan with an 8 percent interest rate that helped the company through its difficulties but complicated its access to capital markets, Saval said. After being hired in April 2017, National Securities raised $9.2 million in a secondary offering before being rehired in August, according to Saval.

Room to grow

National Securities’ role included introducing the business to Ospraie, which has made  previous agricultural investments including the establishment of farmland manager Teays River Investments and NYSE-listed diversified farming company Adecoagro.

“As we dug into the company, it was pretty clear that Pam and her team were exceptional scientists, but they had let some business issues and management get in the way of their success,” Ospraie partner Jason Mraz told Agri Investor. “We’re not trying to change everything, they have a wonderful portfolio of IP, but it’s about allowing it to blossom and flourish without the business issues.”

“It’s about allowing it to blossom and flourish without the business issues”
Jason Mraz

Dwight Anderson, Ospraie’s founder, told Agri Investor that the firm’s previous investments gave it a background in GMOs, agricultural chemicals and the demand for biocides stemming from growth in organic production. After identifying the segment as being of interest, Anderson said it took a few years before settling on making an investment with MBI.

“We thought, through our network, we could potentially add value in terms of management in the sales, marketing and operations side,” Anderson said. “It isn’t just financial capital, it really is the background, expertise, human capital and network that we believe we can bring for the board, for the advisory council and the actual management of the company.”

Anderson said his firm will be represented on the MBI board by former Ospraie analyst Yogesh Mago and former Syngenta Corporation chairman Bob Woods, who will be joined by the end of the year by two more executives with experience in biocides and related chemicals.

Ripe for PE?

Saval described the biopesticide industry as having begun largely with university researchers, who eventually established start-ups that solicited investment from venture capital. Such seed capital was followed by sophisticated early-stage fund investors who helped bring MBI’s products to the market. Farmer adoption is increasing rapidly and producing double-digit growth for the segment, Saval said.

“It will start to attract private equity-type rationalization of the space, which, I believe, needs to happen as the next step in the evolution of biopesticides”
Ivan Saval

“Mid-stage, strategically oriented institutional investors aren’t looking at the biopesticide space as much as they should,” said Saval. “Once it starts to get out that Marrone Bio sourced a group of reputable institutional parties to put their capital at risk in this segment […] it will start to attract private equity-type rationalization of the space, which, I believe, needs to happen as the next step in the evolution of biopesticides and sustainable agricultural solutions.”

Because biopesticides address pest management issues – the biggest hurdle to an increase in organic production – Saval said the segment’s growth will be driven both by growing demand for organic food and conventional farmers’ appetite for integrated pest management, which uses biopesticides alongside synthetic chemicals.