Paine Schwartz acquires $150m preferred equity stake in AgroFresh

AgroFresh CFO Graham Miao says a partnership with Paine Schwartz could be helpful beyond the company’s immediate focus of deleveraging its balance sheet.

Paine Schwartz Partners has invested $150 million into Nasdaq-listed AgroFresh Solutions – whose offerings extend shelf-life of produce – in exchange for newly issued convertible preferred stock equivalent to 36 percent of outstanding shares in the company.

A market source told Agri Investor the investment drew from Paine’s Food Chain Fund V, which closed on $1.45 billion late last year.

According to a June 15 statement, Paine Schwartz’s investment gives the firm two seats on an expanded AgroFresh board of directors and carries a 16 percent annual dividend, a minimum of 8 percent of which is to be paid in cash.

AgroFresh chief financial officer and executive vice-president Graham Miao told Agri Investor: “The Paine Schwartz preferred equity investment – while on the surface the 16 percent coupon dividend appears expensive – but we believe they provide a strategic angle to us.

“Together, we hope this is a constructive and collaborative partnership going forward. That could be very helpful to AgroFresh’s next chapter of growth after refinancing.”

Philadelphia-headquartered AgroFresh offers products and services that enhance quality and shelf life of fresh produce and help to control decay in crops. Its flagship treatment product, SmartFresh, is widely used in apple markets, which accounted for about 75 percent of AgroFresh’s revenue by crop during the year that ended in late March.

The company has plans to expand SmartFresh use further in bananas, cherries, and avocados, among other crops. AgroFresh also sells treatments designed for citrus and flower crops and anti-microbial disinfectants to help growers and packhouses handle fruit, among other offerings.

AgroFresh began in 1999 as a research collaboration into post-harvest treatments between Philadelphia-headquartered specialty chemical manufacturer Rohm and Hass and The Dow Chemical Company, which remains its largest shareholder.

As of the end of March, AgroFresh’s total debt was $406.4 million with a term loan maturity in July 2021, Miao said on the company’s first quarter conference call in early May.

The company had several options, Miao said, when it began working to refinance its debt late last year, including what he described as significant interest from other private equity and strategic investors. A dialogue with Paine Schwartz about some form of partnership began in December, Miao said, adding that firm executives said then that Paine had been following the company since its spin-out from Dow about five years ago.

Miao said Paine’s investment will be dedicated to deleveraging AgroFresh’s balance sheet, which will have reduced its net debt to adjusted EBITDA ratio from 5.8x to 3.8x after the deal has been formally closed, which is expected by Q3 2020.

Paine Schwartz declined to comment.

In the statement, chief executive Kevin Schwartz said the firm intended to pursue new opportunities in post-harvest technology through its strategic investment in AgroFresh.