Food, agribusiness, beverage M&A deals more than double
Given that so much else is demanding media attention, it’s hardly surprising merger and acquisition (M&A) momentum in the agribusiness, food and beverage sector -- despite its significance to the economy -- isn’t making too many headlines.
Yet M&A in this sector has demonstrated remarkable resilience in the face of shifting market conditions and uncertain global headwinds, by more than doubling ($3.47b to $7.48b) disclosed deals in the past 12 months.
But while Macks Advisory concedes this may not be a topic to make everyone’s pulses pound, we nonetheless believe thousands of people running businesses in the sector, or associated with it, could do well keeping an eye on its prospects.
Last year the food sub-sector disclosed 46 M&A transactions compared with agribusiness’s 28 (more modest in value terms despite solid deal flows) and the beverage sub-sector disclosed 12 transactions.
The sector’s current increase in activity is being driven by a smaller number of large-scale strategic transactions reflecting market preference for quality, scale, and long-term fundamentals, supported by stable businesses and reliable supply chains.
Private equity’s role
The trend with private equity is to target agribusiness, food and beverage assets with long-term growth exposure and prospects of “better-for-you” outcomes with consumers, and to the capture of higher-margin profiles for investors.
Australia is benefitting from heightened geopolitical uncertainty and increasing global capital selectivity. These have sharpened investor focus on Australia as a jurisdiction offering durability together with sustained, credible growth.
Here is a backdrop against which it’s expected there will be continued investment as sponsors and institutional investors remain interested in scaled and vertically integrated platforms that offer scope for strategic and operational value creation.
Sources inform us that this year we should expect to see increasing focus from both sponsors and corporates on strategic acquisitions that deliver digital uplift across data, automation and customer engagement.
There’s also expectation of enhanced supply chain resilience, reflecting on lessons learned from recent volatility in input costs, energy and logistics.
It’s an environment where regulatory, predictability and execution of a deal are becoming increasingly important considerations in transaction planning.
Regulatory considerations
The sector operates in a highly dynamic and regulated environment affecting how companies need to be positioned for potential sale. This plays an important part in how possible bidders assess targets.
Australia’s Foreign Investment Review Board (FIRB) settings for agribusiness are tight, reflecting national-interest and biosecurity concerns. Treatment of certain supply-chain assets is regarded as critical infrastructure.
Accordingly, both foreign parties and domestic players in this space should be aware of applicable FIRB approval thresholds. For example, an entity is regarded as agribusiness where more than 25% of its earnings before tax or asset valuation relates to agricultural activities.
Foreign persons acquiring direct interest in such an entity (usually 10%) for $75m or more (inclusive of any existing holdings) must get FIRB approval. Higher thresholds apply to investors from the US, Chile and New Zealand ($1,498m).
Where agricultural land is concerned, FIRB approval is required when the total value of the foreign acquirer’s interest in such land (existing and proposed) exceeds $15m (it’s $50m in Thailand’s case). Higher thresholds also apply to the three countries referred to above, and the FIRB requires the agricultural land involved to be used for primary production.
To avoid delays in deal planning and executing, it’s vital for parties in the agricultural subsector to engage early in the process with the FIRB.
Developments in the sector
Since the beginning of this year acquisitions of shares or assets (including legal or equitable interests) must be reported to the Australian Competition and Consumer Commission (ACCC). The reported acquisition can only occur after the target undertakes to “carry on business in Australia when no exemptions apply, and certain control and monetary requirements are met.
The new regime is expected to significantly increase the number of acquisitions reported to the regulator.
Furthermore, to assess whether an acquisition is likely substantially to reduce current healthy competition, the ACCC can, in that context, now look at the cumulative effect of the merging parties in the past three calendar years.
The ACCC says it intends to look at evidence regarding parties’ acquisitions and any pattern of acquisitions that could be indicative of a strategic approach to serial acquisitions.
