A Feeding Frenzy in Agriculture – Cannibalism and M&A Prey

Chris Sworder

It’s always difficult to get a big picture of the agriculture industry. It’s huge. However, two big things are important: mega-mergers and bountiful exits.

Big companies

In recent years, we have seen a number of mergers that would see large percentages of market share across the Agriculture & Food sector concentrated in an even smaller number of companies. Just as one small example, with this set of mergers shown on the right, 70% of the world’s pesticide market and 83% of the US corn seed market would be controlled by just three companies. There are further concerns, including the impact on seed prices, where farmers using Monsanto cottonseed may see their seed prices increase by 19.23%, while those using Bayer seeds may see a price rice of 17.41%. With any merger of this scale – whether it is in pharmaceuticals, agriculture, media, or any other industry – there will always be talk of oligopilization, or worse, monopolization of a market. The extent to which this may be true compared to the cost saving enabled through aligning some of these companies that each operate global infrastructures in competitive markets will not be solved here. However, since the first murmurings of these mergers surfaced, it does seem to have had an interesting effect on the rate at which M&A transactions in the Agriculture & Food world have been executed.

There are many possible explanations for this. Could this consolidation of multinational agricultural corporations be providing a stimulus for innovation? Is this the result of a digitization wave in agriculture? Or is this an acknowledgement by large corporates that open innovation, through corporate M&A, is part of the solution that brings these decades-old companies into the 21st century landscape of agricultural innovation? Whatever the reason, or combination of reasons, may be these companies have been responsible for 200+ exits over the past 20 years.

Focusing on the last few years, some of the largest corporations have been busy making acquisitions:

Looking at this list, it would seem that many of these acquisitions are aligned with previously existing business streams for the acquirer corporations. However, one further M&A strategy that has caught our eye is where a more generalist corporate has been busy building a platform offering for farmers, and the agriculture industry more generally. Trimble, based in Sunnyvale, California at the southern end of Silicon Valley, reckons that as an established geographical-information company, it is well placed to move into the smart-farming market with a system called Connected Farms. It has bought in outside expertise in the shape of AGRI-TREND, a Canadian agricultural consultancy, which it acquired in November 2015, but has also been developing competency in agriculture through a number of acquisitions.

So what?

One common criticism of Agriculture & Food as a target sector for venture and growth equity capital is that the innovation tends to be CAPEX heavy with long lead-times, and therefore relatively unsuited to the typical venture capital return cycle. What we are seeing, both in the growing dollar amount of venture investment going into the Agriculture & Food sector and here with the growing number of exits, seems to indicate a promising future.

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