Agri investors not chewing the cud. Sector M&A activity picks up.
CAPE TOWN – The agriculture and food sector has been a hive of activity in recent months, with mergers, acquisitions and share buyouts taking place. New management is in place at Zeder, Agricol and Pioneer and the shares of companies like Zeder, Illovo, Omnia, Pioneer, Distell and Capevin are at, or close to 12-month highs.
At the same time, the agricultural stocks that trade ‘over the counter’ (OTC), such as Kaap Agri, Senwes, Agri Voedsel, NWK and Suidwes, are also trading on 12 month highs.
So what is going on?
“There is positive sentiment in the sector,” says Antonie Jacobs, CEO of seed company Agricol and former CEO of Zeder. “Foreigners are looking for agri assets; private equity funds are looking, even our own pension funds are looking.”
Globally the trend towards urbanisation has been sustained while at the same time primary agriculture and food production has been somewhat neglected, adds Norman Celliers, Zeder CEO. “On the one hand growing numbers of emerging consumers have primary needs that must be met; on the other affluent consumers are returning to basics. They want to know where their food is from, how it was grown and whether it’s organic. We believe these trends will drive structural changes in the agri sector.”
The positive macro-trends in the sector were reflected last week by chemical company Du Pont, whose strong quarterly results were based on good sales in the agricultural sector, while its industrial division disappointed.
PSG, Zeder
Locally, much activity has been generated by PSG and its subsidiary Zeder Investments (JSE:ZED) which last year shifted its investment strategy to become more actively involved in the companies it invests in. “Our aim, through Zeder, is to take bigger stakes in companies where we can exert more influence. The aim is to drive strategy quickly and get to results faster,” says PSG CEO Piet Mouton.
With this in mind, Zeder recently acquired Bidvest’s stake in fruit exporter Capespan and also bought out Capespan’s Irish investor, Total Produce, giving it majority control. “Total had firm ideas about the strategy for Capespan, and with a 25% stake they could veto a lot of things,” he says. “Now we are in a different position. We have spent a lot of time with management; we support them – when they dream big we are there encouraging them to dream bigger.”
Capespan has developed a two-pronged strategy around fruit export and logistics – but recent results suggest this is a work in progress. “We will help clarify a long-term strategy,” says Celliers from Durban where he was assessing Capespan’s port infrastructure. “The two parts – port logistics and global food procurement and marketing can complement each other well.”
Late last year Zeder subsidiary Agricol – a seed company whose executive chairman is Antonie Jacobs – acquired a 49% stake in Oudtshoorn-based Klein Karoo Saad Bemarking which produces a variety of seeds on a contract basis for seed companies. Zeder has an option to increase this stake.
Zeder also owns 34% of Kaap Agri, an ambitious agricultural retail and services company. It recently tried to buy-out minorities; however the offer, at a 30% premium to the market, simply drove the price up to the offer price, and the bid failed.
Pioneer
PSG also had a behind-the-scenes hand in the appointment of Phil Roux who replaced Andre Hanekom as CEO of Pioneer Foods in April this year. “We like Phil,” says Mouton. “Sometimes you need someone new in a business to challenge you. He will bring a new level of energy to the group.”
The market also likes the changes. Pioneer moved from R55/share six months ago to over R75 on Monday.
Distell
But not all of the action is being stage managed by PSG and Zeder, says Anthony Clark, small- and mid-cap analyst with Vunani (JSE:VUN) securities. For instance Distell has made two acquisitions recently – of Scotch whisky producer Burn Stewart and the Kenyan government’s stake in Kenya Wine Agencies.
Shares in both Distell and Capevin – which owns 30% of Distell – rose on the news. Zeder used the opportunity to sell 133m of its Capevin shares at 600c. These were snapped up by Coronation. “Zeder has small stake remaining in Capevin which it will sell in time as it is non-core,” says Clark. “At this point Zeder will have a R1.3bn war chest.”
Senwes
In the OTC space Senwes and JSE (JSE:JSE)-listed AFGRI (JSE:AFR) recently received regulatory approval to merge their retail operations. Similarly Suidwes Agriculture Group got the regulatory go-ahead to acquire Agrinet – a wholesaler and distributor of agricultural products with interests in Africa.
“Senwes is the biggest company you have never heard of,” says Clark. It’s SA’s second biggest agri business (after Afgri) and turns over R13bn/year and makes R500m in operating profit. “Its aim is to use its financial muscle to expand in SA, via M&A, and from there into Africa.”
Clark believes the Afgri/Senwes tie up will trigger a wave of activity. “Smaller co-ops, like Suidwes and NWK must be wondering if they are next or whether they should merge their interests too. With Zeder owning large stakes in both, perhaps the deal will set off a wave of consolidation.”
“This is just the beginning,” says Jacobs. “There are many opportunities in agriculture, food and related services. The food story is a positive one, Africa is positive and we think there is money to be made.”
