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‘Sexier than corn’

Animal health is an increasingly lucrative sub-sector of the agribusiness investment market.

Prominent agtech-focused venture firm Cultivian Sandbox this week led a Series C round of investment in Advanced Animal Diagnostics.

The $15 million funding round for the US livestock health management technology company – which has developed an on-farm mastitis test for dairy cows – was a reminder that the animal health sub-sector is an increasingly exciting opportunity for private capital.

Since the launch of Agri Investor earlier this year, I have heard more and more about this sub-sector as an appealing destination for a wide range of investors. As this week’s deal shows, there is plenty of new technology ripe for investment from the early-stage and venture capital community. But the sector’s more developed products, such as vaccines and antibiotics, are also appealing to later stage investors – and six IPOs over the past two years have demonstrated that public markets are keen and can make viable exit routes.

For example, in April this year, Phibro Animal Health raised around $176 million when it listed on the NASDAQ, giving its UK-based private equity backer 3i a partial realisation of $112.5 million, while its remaining 7 percent stake was valued at nearly $42 million. Together, 3i said that represented an uplift of nearly £22 million ($34 million; €28 million) over the December 2013 valuation of it stake.

Perhaps the most prominent IPO in the sector has been Pfizer’s spin-off of its animal health business, Zoetis, which analysts thought in 2012 could be worth as much as $18 billion. While it was presumably eyed by private equity firms as well as trade buyers including healthcare giants Novartis and Bayer, Pfizer ultimately listed 20 percent of the company in 2013 on the NYSE, raising $2.2 billion. It may still end up in the hands of a PE or trade buyer, however; activist investor William Ackman’s Pershing Square has been amassing shares and agitating for change, according to the Wall Street Journal.

Spinning off animal health businesses makes a lot of sense to some large agribusinesses and IPOs are not the only route for them to go, according to James Ash, food and agribusiness group head at Husch Blackwell, the law firm.

“Some large agribusinesses have started to notice that their animal health business is a hidden value on their balance sheets so are now considering spinning them out as standalone businesses,” he said. “They can also be acquisitive in the sector and grow organically through M&A, which recent deal flow suggests is also a popular route.”

The above are just a few examples and don’t even take into account the opportunity for private capital in areas like antiobiotic replacement for organic food lovers, and feed supplements and additives.

“Animal health is a little sexier than growing better corn or efficient irrigation,” said Ash. He describes the appeal of animal health businesses in the wake of food security and food safety concerns worldwide as “the perfect storm for the sector”.

And to add a sweetener, the agricultural livestock health management industry also fits nicely with a booming pet animal industry. So with an appealing route to the public markets or sector consolidation, expect the animal health sector to be on the radar of the private equity industry for some time to come.

What are your views? Get in touch at Louisa.b@peimedia.com. And as we approach the end of 2014, I am keen to hear about any success stories, game-changers, lessons learned and plans for 2015.