SPOT ON ORGANIC & SUSTAINABLE AGRICULTURE Organic and... · Management. The company plans to build...

Matt Laffey and Doug Kravet, Oaklins' organic and sustainable agriculture specialists, are pleased to share some high-level industry intelligence in this edi-tion of Spot On.

“Over the past two decades, there has been a shift in consumer preferences toward fresh and healthy foods. This increased demand has caused fundamen-tal changes in the way crops are grown and delivered to retailers and food companies.

"Compared to 20 years ago, many farmers are using different crop rotations, non-GMO seeds, organic ferti-lizers, crop protection products and irrigation systems that focus on water management. Advances in farm-ing equipment and the use of software to understand farm yield data have also made farms more efficient.

"As farms expand production, the supply chain is in-creasing its capacity to support shipment of identi-ty-preserved crops. Firms throughout the supply chain are focusing on food safety and traceability so that consumers have visibility into the food they are eat-ing. At the same time, farms are increasing production yields to support a growing global population.

"Together, these trends are driving M&A transactions throughout the global agricultural supply chain. In the near term we expect to see companies make acquisi-tions for a variety of purposes such as entering new geographic markets, expanding production capabili-ties, purchasing strategically located assets, securing intellectual property and strengthening a supply chain for organic products that is still under development.”

ORGANIC & SUSTAINABLE AGRICULTURE

SPOT ON

Page 6

SECTOR VIEW

• 69 deals closed in the first nine months of 2017 vs 79 deals in FY 2016

• 33% cross-border

• Demand for organic and healthy foods is driving changes in agriculture

• Publicly traded EBITDA multiples increased in Q3 2017

Page 4

SPOTLIGHTINDUSTRY TRENDS

Page 2

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VALUATION TRENDS

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Water, seeds, fertilizer and inputs

Animal and crop production

Processing, storage, distribution and other

Equipment and services

Eric Jackson

CEO of Pipeline Foods

2Spot On · Organic & Sustainable Agriculture · 1st edition 2017

This category encompasses all of the functions required to store, handle, process and transport the commodities from the growers to the food companies, retailers, food processors and other types of customers.

Industry trends

Land, water and primary inputs Animal and crop production



To analyze the organic and sustainable agriculture sector with more granularity, we have separated the industry into the four categories below.

Between 2014 and September 2017, a total of 319 transactions were completed*. Of the 69 deals closed in 2017, 33% were cross-border.

This category includes firms that own farmland and water rights, seed companies, and producers of fertilizer and pesticides. Primary input companies are firms that promote soil fertility and biodiversity and do not use agricultural practices that degrade water or other natural resources.

This broad category comprises growers that focus on:• Fresh fruit such as citrus, grapes, apples, pineapples,

berries and melons. • Fresh vegetables such as lettuce, tomatoes, zucchi-

nis, cucumbers, onions, peppers, broccoli, cauliflow-ers and eggplants.

• Corn, wheat, barley, peas, lentils, soybeans, pota-toes, green beans and legumes.

• Sunflower, olive, palm, sesame, canola and other oilseed crops.

• Other crops such as nuts and mushrooms.• Livestock husbandry, including cattle, poultry, pork

or other animals. Only livestock that is raised for meat or dairy products is included in this report.

• Seafood, including fish, mollusks, crustaceans and other marine animals.

Many of the companies in this category are considered “AgTech” firms, which consist of soil, bio-analytical, GMO and other types of testing laboratories; greenhouse and hydroponic farming equipment firms; smart-irrigation and water-management systems; and precision-agricul-ture firms.

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19292829

16191820

26212528

Land, water and primary inputs

Animal and crop production Processing, storage, distribution and other


8101111

69798388

Organic & sustainable M&A deals from 2014 to Q3 2017

*These transactions were screened to include firms that owned farmland, produced agricultural inputs, grew crops or processed, stored and distributed commodities that were organic, non-GMO or grown using sustainable agriculture practices. Firms that manufactured equipment or provided services to better utilize soil or water in agriculture were also included.


Industry trends

Over the past two decades, consumer sentiment has shifted toward food that is grown and sourced in a sustain-able manner. An increasing number of consumers are interested in pursuing a healthier lifestyle, which includes eating healthier foods.

In response, larger retailers are now carrying a wider range of organic, natural and other healthy foods. While the two largest markets for consumers of organic foods are in the USA and Europe, regional markets are growing in Asia, Latin America and Africa.

A comparison of the supply and demand of the sustainable agriculture market can be made by analyzing the growth in organic retail sales compared to the growth in organic farmland acreage*. While the total amount of organic farmland acreage has increased substantially since 2000, this growth rate has not kept pace with retail sales of organic products.

As a result of the gap between demand for organic commodity and the lack of supply of acreage, many farmland owners seek to grow organic crops. However, the conversion process from growing conventional crops to organic crops requires a period of three years for the transition, which makes keeping pace with demand difficult. Addi-tionally, switching from conventional farming to organic farming can be complex as the farmer has to change crop rotations, the type of fertilizer and pest controls that are used, and many other factors.

Organic retail sales growth has outpaced the growth in certified organic farmland for the past 15 years

*The comparison presented in this report does not adjust for price increases in retail sales or the improvement in farm production yields from technology and more efficient agricultural methods.

Organic retail sales growth(Global sales, in US dollars)

Organic farmland(Global acreage, in millons of hectares)

Source: The World of Organic Agriculture: Statistics & Emerging Trends 2017

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81.6

17.9

10.6% CAGR

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50.9

14.9

8.5% CAGR


Pipeline Foods is building a global supply chain to address the organic and non-GMO grains and oilseeds market

Pipeline Foods is a sustainable supply chain company that supports both growers of organic and non-GMO crops and food companies. The company is currently focused on building out a global supply chain to serve the organic and non-GMO grains and oilseeds market. Pipeline Foods was formed through a partnership

between Pipeline Opportunity Partners and AMERRA Capital Management in early 2017 and has expanded quickly, making several acquisitions this year. The company has offices in the USA, Canada and Argentina. Pipeline Foods has aggressive expansion plans in the next three to five years.

Examples of commodities

Barley Corn Lentils Peas Soybeans Wheat

Spotlight

Date Country Key event

Feb-2017

Pipeline Foods was established as a platform by Pipeline Opportunity Partners and New York agribusiness investment firm AMERRA Capital Management. The company plans to build a business with a network of strategically located agricultural handling and processing assets in both origin and destination markets.

Apr-2017

Regional offices are established in Winnipeg, Canada, and Buenos Aires, Argentina. Along with its headquarters in Minneapolis, Minnesota, Pipeline Foods now has operations in three of the top grain-producing areas in the world.

Sep-2017

Pipeline Foods purchased two grain elevators in Saskatchewan, Canada. Each facility will serve as a primary collection/origination point for organic and non-GMO grains in the region. The company will store, screen and blend grains at these locations, which both have access to rail transportation.

Oct-2017

With the purchase of a grain elevator in Lignite, North Dakota, from Cenex Harvest States, Pipeline Foods increased its capacity and capabilities to connect its grain supply with food companies and manufacturers across the USA that are seeking to purchase identity-preserved grains.

Oct-2017 Two additional acquisitions are either completed or are nearing completion. These acquisitions are expected to be reported in the coming months.

A chronology of key events


Pipeline Foods’ strategy is to develop a global, sustainable supply chain that accelerates the availability of healthy and organic foods. The company currently focuses on the organic and non-GMO grains and oilseeds market. This specific market was chosen because: (a) the infrastructure that is currently in place cannot support the demand from food companies and (b) Pipeline Foods’ management team has a clear strategy to deploy capital to build the necessary infrastructure.

The company’s strategy to “Rationalize the Supply Chain”, as described by Eric Jackson, Pipeline Foods’ CEO, is expected to take cost out of the overall supply chain, yielding increased profitability for both farmers and food companies. The supply chain will also accelerate the supply of organic crops to the marketplace, while increasing the stability and overall dependability of the system.

Pipeline Foods’ expansion plans include establishing grain storage, handling, crushing and milling operations. These expansion plans will include acquisitions and organic growth and will be made in a way to build the entire supply chain with an emphasis on traceability, assurance and identity-preservation of the crops. As the overall throughput of the system increases, Pipeline Foods will help to close the gap between the supply and demand of organic crops and non-GMO crops that exists in the market.

Strategy

Spotlight

Rationalizing the organic and non-GMO supply chain

Storage, handling, crushing, milling, transportation,

traceability, assurance and identity-preservation

Yields:

● Increased prices for growers

● Reduced costs for food companies

● A more stable and dependable supply chain

Growers Foodcompanies

Recent acquisitions

+ + …

Sep-2017

Gull Lake, Saskatchewan

grain elevator

Sep-2017

Wapella, Saskatchewan

grain elevator

Oct-2017

Lignite, North Dakota

grain elevator

Total

US$300–500 million

investment expected in global

supply chain in next three to

five years



Sector view

6

Eric Jackson (CEO)

Bachelor of Science in Agricultural Economics, University of Illinois

Began career with The Pillsbury Company

Corporate Officer of International Proteins Corporation (IPC)

Architect of sale of IPC to The Scoular Company

Co-Founder of Conservis

Founding CEO of Pipeline Foods, 1 January 2017

6

The result is better economics for farmers on one end of the supply chain and food companies on the other end

In October 2017, we had discussions with Eric Jackson, Pipeline Foods' CEO, to talk about the company’s growth strategies.

How is Pipeline Foods “rationalizing the organic and non-GMO supply chain” and how are you using M&A to accelerate the process?

While food companies have responded to changes in consumer preferences over the past decade, agricultural supply chains have generally remained focused on large-scale conventional commodities. As a result, there is more demand for organic and non-GMO commodities than available supply.

At Pipeline Foods, we help to fill this gap by providing a complete solution for both growers and food companies. The company is developing programs, building assets and buying assets to make the supply chain more efficient. The result is better economics for farmers on one end of the supply chain and food companies on the other end.

We like to focus our operations in geographies that have long traditions of organic farming, such as Saskatchewan in Canada. Historically, the supply chain for organic crops in these communities has been comprised of shipping commodities via truck from the farm to the end location.

We are making this process more efficient by establishing primary collection points for the farmers that are nearby and easily accessible by truck. Certain value-added services, such as cleaning and grading, are also provided at the facilities. The commodities are shipped via rail instead of truck, which reduces transportation costs. By smoothing out shipments and reducing transportation costs, we are able to pay higher prices to farmers. Also, we can perform the necessary testing and assurance required to preserve the identity of the crops, while passing along lower costs for food companies.

The proposition is simple but there does not seem to be anyone else that is taking the same approach. Mergers and acquisitions have been necessary to implement our growth plans. We are seeking to acquire assets, such as grain elevators, to quickly build our supply chain.


How would you describe your initial acquisitions and growth strategy?

We believe our assets are best utilized when they support communities that have strong organic agriculture capabilities. The company’s acquisition of two grain elevators in Saskatchewan was in the heart of the organic grains market in Canada. At the Wapella facility, we purchased an under-utilized grain elevator that was disconnected from the railroad. We will be able to implement controls at this facility for identity-preservation and assurance using proven methods. Each facility is expected to move an estimated 25,000 metric tons of organic and non-GMO commodities in 2018.

When combined with the grain elevator that was purchased in North Dakota, we have the capabilities to connect identity-preserved grain supplies to food companies and manufacturers throughout the USA and Canada. Our plan is to continue acquiring strategic assets in the USA, Canada and other geographies in the near term.

What are your near-term growth plans?

We place a very high priority on integrating the assets we purchase. This is the best way to ensure that we produce durable supply chains for growers and food companies. At the same time, we are seeking to develop programs to assist organic farmers to expand their production of organic and non-GMO crops.

You mentioned that Pipeline Foods is building a global supply chain. Can you briefly describe your cross-border capabilities?

In our view, supply chains for organic and non-GMO grains and oilseeds are the least developed in the market. There is a significant lack of infrastructure globally, which represents a challenge and a specific opportunity. It is necessary to have international capabilities and operations across several continents. In support of our broader team in Minneapolis, Minnesota, we have established regional headquarters in Winnipeg, Canada, and Buenos Aires, Argentina. These "boots-on-the-ground" provide access to three of the top grain-producing areas in the world.

Sector view



Companies that fit our four categories

Selected players

Land companies Country Market cap (US$m) EV/Rev EV/EBITDA

Farmland Partners USA 352 22.4x 40.8x

GladStone Land USA 181 21.9x 32.7x

Rural Funds Group Australia 439 15.9x 13.6x

Average 20.1x 29.0x

Median 21.9x 32.7x

Seed, fertilizer and crop protection companies Country Market cap (US$m) EV/Rev EV/EBITDA

S&W Seed USA 65 1.4x 63.2x

Vilmorin & Cie France 1,887 1.8x 7.8x

Sakata Seed Japan 1,302 2.1x 12.5x

Agrium Canada 15,027 1.5x 12.1x

ForFarmers The Netherlands 1,331 0.6x 12.6x

Average 1.4x 12.4x

Median 1.5x 12.5x

Company Country Market cap (US$m) EV/Rev EV/EBITDA

Origin Enterprises Ireland 1,003 0.6x 12.7x

Idexx Laboratories USA 13,571 7.8x 30.6x

Jain Irrigation Systems India 760 0.7x 5.0x

Lindsay USA 983 1.9x 17.1x

Dayu Water-Saving Group Company China 870 5.9x 43.6x

Bucher Industries Switzerland 3,628 1.5x 14.0x

Neogen USA 2,962 7.5x 34.2x

Fortive USA 24,600 4.2x 18.3x

Trimble USA 9,936 4.1x 24.6x

First Sensor Germany 195 1.5x 14.2x

AgJunction USA 47 0.7x NM

Mexichem Mexico 5,670 1.6x 7.2x

Average 3.2x 20.1x

Median 1.8x 17.1x


Equipment and services companies

(1) Since REITs trade at significantly different multiples than the primary input companies, they were separated in the tables above.

(2) The extremely large seed companies such as Monsanto, Syngenta and Pioneer/DuPont were not included in this analysis.


Selected players


Olam International Singapore 4093 0.7x 11.7x

Wilmar International Singapore 14,902 0.7x 10.8x

The Andersons USA 968 0.4x 14.7x

GrainCorp Australia 1,489 1.0x 8.8x

Greenyard Belgium 999 0.3x 11.7x

Total Produce Ireland 861 0.3x 11.2x

Kernel Holding Ukraine 1,273 0.8x 5.7x

Average 0.6x 10.7x

Median 0.7x 11.2x


China Shengmu Organic Milk China 1,130 3.0x 8.5x

Camellia UK 384 1.1x 6.9x

Marine Harvest Norway 9,868 2.6x 9.5x

Kuala Lumpur Kepong Malaysia 6,205 1.5x 20.5x

Bakkafrost Faroe Islands 2,274 4.7x 8.8x

Adecoagro Brazil 1,305 1.8x 6.8x

BrasilAgro Brazil 227 4.4x 14.2x

Nippon Suisan Japan 1,771 0.6x 12.9x

Average 2.5x 11.0x

Median 2.2x 9.1x

Processing, storage and distribution companies

Animal and crop production companies

EV/Rev: Enterprise Value to Revenue multipleEV/EBITDA: Enterprise Value to EBITDA Values are in US$m as of 30 September 2017Sources: Capital IQ; PitchBook


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There is significant variation in the revenue multiples across the different sectors, with processing, storage and distribution companies trading at the lowest revenue multiples and animal- and crop-production

companies trading at the highest multiples. Multiples for equipment and services, which include “AgTech” companies, have generally increased in the past several years.

Equipment and services companies trade at the highest EBITDA multiples and the multiples have been expanding over the past two years. This trend is consistent with the overall industry trend of firms

seeking to better utilize technology and equipment to increase the production yields of farms and make the supply chain more efficient.

Listed organic and sustainable agriculture companies show relatively high valuations

Enterprise value to revenue multiples

Enterprise value to EBITDA multiples

Valuation trends


Selected private transactions

Date TargetAcquiror/Investor Category Rationale Country Valuation

EV (US$m)

EV/Sales

EV/EBITDA

Sep-2017Sustainable

animal production

Broadens Synlab’s testing services portfolio, expands its laboratory network and enables expansion into the Netherlands, Sweden and

Denmark

N/A N/A N/A

Sep-2017 Organic Farm in Washington State


Continue building a diversified, high-value agricultural portfolio

9.5 N/A N/A

Sep-2017 Organic crop production

Growth capital for a leading independent

operator in the coconut water sector

N/A N/A N/A

Sep-2017 Organic crop production

Equity investment in farm that grows organic heart

of palmN/A N/A N/A

Sep-2017

Sustainable crop production

& sustainable processing and

distribution

The acquisition increases The Wonderful Co.’s

product lines and operations in North

America

N/A N/A N/A

Sep-2017 Equipment and services

Expansion of technology capabilities for John Deere N/A N/A N/A


Expansion of AGCO’s planting technology and

strengthens its position in the market

N/A N/A N/A


The acquisition of Elution, a manufacturer of food safety test kits, expands

3M’s testing portfolio

N/A N/A N/A

Aug-2017 Equipment and services

Leader in irrigation systems and expansion

of capabilities for ‘smart’ solutions for other

industrial fields

1,895.0 N/A N/A


Expansion of the farm management software of

Encirca, which is owned by DuPont

300.0 N/A N/A

Aug-2017

Sustainable processing,

storage, distribution,

and other

Allows Inspecta Group to expand its business in the

Danish marketN/A N/A N/A

M&A activity

Beijing Capital Agribusiness Group

Co., Ltd. (Sunlon)

elsgeerts

Highlight


Selected private transactions (continued)

Date TargetAcquiror/Investor Category Rationale Country Valuation

EV (US$m)

EV/Sales

EV/EBITDA


Equity investment in food safety business N/A N/A N/A

Jul-2017 Sustainable crop production

Expansion capital for indoor farming business N/A N/A N/A

Jul-2017 Equipment and services

The acquisition will accelerate UpScience’s

expansion in BrazilN/A N/A N/A

Jun-2017 Equipment and services

Expansion capital to accelerate Hydrofarm’s

growth in the indoor farming industry

N/A N/A N/A

Jun-2017EquityGroup

Investments


storage, distribution and other

Growth capital to expand ILTA’s footprint in the global marketplace

N/A N/A N/A

Jun-2017


storage, distribution,

and other

Partnership will expand Gro-Well’s business and increase their product

offering

N/A N/A N/A

Jun-2017

Harvard University

Endowment Dairy Assets in New Zealand

Sustainable animal

production

Harvard Management Co. divested the asset as the result of a reorganization

N/A N/A N/A

Jun-2017Sustainable

animal production

The acquisition will increase Mountaire’s grain

facilitiesN/A N/A N/A

Jun-2017 Sustainable crop production

Expansion capital to accelerate the growth of the indoor farming

business

N/A N/A N/A

Jun-2017



Pacific Coast Producers expands its market

presence and product offering with the

acquisition

N/A N/A N/A

Apr-2017



The acquisition assists The Andersons Group’s

expansion into the ancient grains market

N/A N/A N/A

M&A activity

elsgeerts

Highlight


M&A activity

13

Selected Oaklins transactions

The private shareholders of Suntava Corporation sold the company to Healthy Food Ingredients, LLC (HFI) for an undisclosed consideration.

Suntava is a plant-based specialty ingredients company best known for its proprietary Suntava® Purple Corn (a natural non-GMO hybrid). Suntava Purple Corn is used as an ingredient in functional foods, beverages, nutraceuticals and cosmeceuticals, as well as being a natural colorant for food and beverages. Suntava is the first US business to research, grow and commercialize this naturally high-antioxidant corn, derived from ancient strains of Andean maize. Suntava's purple corn is sold as a whole kernel, flour, meal, grits, masa flour, IQF and freeze-dried fresh purple corn. It is used in various applications, including cereals, snack foods, baked goods, beverages, dietary supplements, skin care and pet food blends.

HFI is a specialty ingredient company that provides non-GMO, organic, gluten free and identity-preserved ingredients to domestic and international customers in the food and pet food manufacturing and food service industries. HFI is the parent company of SK Food International and Hesco/Dakota Organic Products. The company was founded in 2013 and is based in Fargo, North Dakota. HFI was formed in response to increasing industry and consumer demand for ingredients which promote health and wellness, and continues its growth through acquisitions and new, innovative ingredients. HFI operates as a subsidiary of Hesco Inc. Oaklins' team in Jacksonville advised the seller in this transaction.

Case study



MEET OAKLINS, THE WORLD’S MOST EXPERIENCED MID-MARKET M&A ADVISOR

Oaklins offers a comprehensive range of services ● M&A advisory (buy- and sell-side) ● Growth equity and equity capital markets advisory

● Debt advisory ● Corporate finance services

Oaklins industry specialists

Organic and sustainable agriculture is one of our focus areas. Combining comprehensive sector knowledge with global execution has led Oaklins to become the most experienced M&A advisor in the organic and sustainable agriculture sector, with a large contact network of the most relevant market players worldwide. This results in the best possible merger, acquisition and divestment opportunities for organic and sustainable agriculture companies.

If mergers, acquisitions or divestitures of businesses or business units are part of your strategy, we would welcome the opportunity to exchange ideas with you. Please find our contact details below.

Matt Laffey, Principal Jacksonville, USA

M: +1 904 557 8254

Douglas M. Kravet, Principal Jacksonville, USA

M: +1 904 613 4253

Antoine Marchand, Managing DirectorTexas, United States

M: +1 214 235 6917

About Oaklins

Philippe Hermant, Senior Advisor Paris, France

M: +33 6 27 37 16 86

professionals 700

countries 40

transactions5,000+

offices 60

sectors 15

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DisclaimerThis document is provided for information purposes only. Oaklins and its member firms make no guarantee, representation or warranty of any kind regarding the timeliness, accuracy or completeness of its content. This document is not intended to convey investment advice or solicit investments of any kind whatsoever. No investment decisions should be taken based on the content and views expressed herein. Oaklins and its member firms shall not be responsible for any loss sustained by any person who relies on this publication.

© 2017 All rights reserved. Oaklins is the collective trade name of independent member firms affiliated with Oaklins International Inc. For details of the nature of affiliation, please refer to www.oaklins.com/legal.

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