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QUARTERLY UPDATE Q2 2018
AGRICULTURE
Page 2
INDUSTRY OVERVIEWM&A TRANSACTIONS AND INDUSTRY OVERVIEW
-
20
40
60
80
100
120
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
-
5
10
15
20
25
Tran
sact
ion
Volu
me
(Num
ber
of D
eals
)
Tran
sact
ion
Valu
e ($
Billi
ons)
Transaction Value Transaction Volume
Source 1: Capital IQ. Deals announced, closed or effective. Data as of June 30, 2018.Source 2: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/top-economic-trends-of-2018-farmland-values.htmlSource 3: Statistics Canada – 2016 Census of Agriculture
• Intense industry consolidation is still occurring. Large agricultural firms continue to enhancetheir positions in the Canadian market with acquisitions of terminal and processing facilities,and divestitures of non-core assets. There currently exists aggressive competition for M & A.
• Increased investment in agricultural infrastructure in the Prairies is energizing transactionactivity. Trade wars are impacting Canadian producers and may drive transaction activity asindustry players look to diversify offerings. Together with government funding through theCanadian Agricultural Partnership, these investments will likely lead to new market activity.
• The decline in independent input providers continues due to industry consolidation.• Input costs continue to rise while commodity prices have been relatively stable over the four
year period evaluated, yet many commodities face price pressures as key agriculturalmarkets will likely remain oversupplied in 20182.
• Farm cash receipts in Q1 2018 dropped substantially from Q1 2017, a leading indicator toconservative consumer spending. Significant used inventory in the marketplace maycontinue to cause headwinds.
• Continued consolidation and interest of remaining independent dealerships with buyer poolshrinking may balance out valuation multiples in line with historical averages.
• Increased consolidation in Canadian farming – the number of farms decreased 6% between2011 and 2016 with 7% growth in the number of large farms over this same period3.
• Succession issues with family farms and large corporate farms have fuelled consolidationamongst primary producers, while demand for quality land has never been higher.
NORTH AMERICAN AGRICULTURE & FOOD PRODUCTSPUBLICLY AVAILABLE MERGERS & ACQUISITIONS1
Number of mergers & acquisitions in Canada in Q2 2018 in agriculture and food products113
Industry & Infrastructure
Inputs & Commodity Markets
Primary Producers
Ag Equipment Manufacturers & Dealerships
Page 3
1 Industry & Infrastructure (Processing, Terminals, Logistics)
Page 4
INDUSTRY & INFRASTRUCTURECURRENT HIGHLIGHTS
Roquette, a global leader in innovative plant-based foodingredients, announced construction of a $400M pea-proteinmanufacturing plant to be built in Portage la Prairie. Roquettehopes to primarily source peas from Manitoba and Saskatchewan.
Global protein demand is projected to double in the next 30years, and pea protein production is increasing annually at 15 percent.
Consolidation is be expected to continue and increase asproducers look to boost their positioning through acquisitions offarm land and farming operations in the booming prairie market.
Peas.The new protein.
Q2 2018 Update: Construction was slated for
completion in April 2019 but has been delayed into 20201.
World’s largest pea processing plant to be built in Manitoba
Canadian Agricultural Partnership
$3B in government funding to support sector growthThe Canadian Agricultural Partnership is a five-year, $3Binvestment to assist farmers with managing significant local andglobal risks and allow for easier access to programs and services.One of the primary focuses is supporting a dynamic, evolvingsector by enhancing collaboration across different jurisdictions.
This increased support for collaboration will likely lead to furtherconsolidation, with agricultural-focused companies looking foradditional opportunities to grow in this sector.
Trade Wars & Collateral Damage
Trade wars impacting Canadian producersRecent tariffs imposed by China on American goods could causecollateral damage to Canadian producers. China slapped a 25%tariff on American soybeans in early July as a retaliatory responseto American levies on Chinese goods2. These actions haveresulted in steep changes to the futures prices of soybeans.
The increased volatility in the market resulting from trade warsand recent tariffs could contribute to further consolidation in theagricultural space as producers aim to diversify their offerings,and the divestiture of non-core assets to strategic buyers.
Source 1: https://winnipegsun.com/news/provincial/pea-protein-processing-plant-for-portage-delayed-until-2020Source 2: https://business.financialpost.com/commodities/agriculture/china-has-crashed-the-price-canadian-farmers-collateral-damage-in-china-u-s-spatSource 3: http://www.agr.gc.ca/eng/about-us/key-departmental-initiatives/canadian-agricultural-partnership/?id=1461767369849
Page 5
20%
5%
4%
5%
4%
20%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EBITDA MARGIN
23%
5%
2%
5%
3%
18%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EBITDA MARGIN
0%
8%
6%
2%
13%
27%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM REVENUE GROWTH*
70%
-3%
1%
-11%
-20%
10%
-40% -20% 0% 20% 40% 60% 80%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM REVENUE GROWTH
Source: Capital IQ Note *: Nutrien Ltd. NTM Revenue Growth removed for presentation as growth incorporates recent M&A with Potash Corp. and Agrium merging into Nutrien.Figures above are based on median peer group metrics.
INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
8.0% 11.4%
9.1% 9.9%
Forecasted Improvements in Revenue Growth and EBITDA Margin for Public CompaniesThe median last twelve month (LTM) revenue growth for the highlighted companies was 8.0% and is forecast to showstrong improvements with an expected normalized median next twelve month (NTM) revenue growth of 11.4%.
The median NTM EBITDA margin for these companies is expected to reach 9.9%, while the expected enterprise value (EV)over EBITDA multiples are forecast to decrease to 10.5x over the next twelve months.
Page 6
11.4x
10.5x
8.4x
11.8x
12.8x
7.9x
0.0x 10.0x 20.0x 30.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EV/EBITDA
30.3x
11.7x
17.5x
12.2x
24.3x
11.2x
0.0x 10.0x 20.0x 30.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EV/EBITDA
Source: Capital IQ
INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
17.9x 10.5x
Trading Multiples & Operating Statistics(Figures In $CAD Millions, except percentages and ratios)
CompanyMarket
CapitalizationEnterprise
Value RevenueRevenue
Growth EBITDAEBITDA Margin
Nutrien Ltd. $44,959 $58,172 $8,405 70.4% $1,919 22.8%Archer-Daniels-Midland Company $33,708 $44,581 $79,134 -2.5% $3,737 4.7%Bunge Limited $12,919 $22,889 $58,434 1.0% $1,286 2.2%The Andersons, Inc. $1,271 $2,531 $4,475 -10.8% $203 4.5%AGT Food and Ingredients Inc. $371 $1,024 $1,628 -19.9% $42 2.6%The Mosaic Company $14,220 $20,416 $10,013 9.9% $1,786 17.8%Median $13,570 $21,653 $9,209 -0.8% $1,536 4.6%Mean $17,908 $24,936 $27,015 8.0% $1,495 9.1%
LTM Operating Figures
(Figures In $CAD Millions, except percentages and ratios)
CompanyRevenue
GrowthEBITDA Margin
NTM EV/EBITDA
LTM EV/EBITDA
LTM EV/REV
Nutrien Ltd. 194.8% 20.3% 11.4x 30.3x 6.9xArcher-Daniels-Midland (ADM) Company 7.7% 5.2% 10.5x 11.7x .6xBunge Limited 6.5% 4.4% 8.4x 17.5x .4xThe Andersons, Inc. 2.0% 4.8% 11.8x 12.2x .6xAGT Food and Ingredients Inc. 13.2% 4.3% 12.8x 24.3x .6xThe Mosaic Company 27.4% 20.3% 7.9x 11.2x 2.0xMedian 10.4% 5.0% 10.9x 14.8x .6xMean 41.9% 9.9% 10.5x 17.9x 1.8x
NTM Consensus Estimates Valuation
Page 7
2 Inputs & Commodity Markets
Page 8
INPUTS & COMMODITY MARKETSPRICE CHANGES
103104105106107108109110111112113114
-
200
400
600
800
1,000
1,200
May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18
Farm
Pric
e In
put
Inde
x
$/m
etric
tonn
e
Wheat - excl. durum Barley Soybeans Grain cornCanola Flaxseed Durum LentilsDry peas Farm input price index
Chart Source : Farm product prices, crops and livestock – Stats Canada.
Commodity Price Fluctuations and Farm Input Price Index Costs While average commodity prices have seenstability in recent years, a closer look at specificcommodities indicate drastic fluctuations–notably lentils. The Statistics Canada Farm InputPrice Index (FIPI) estimates the change in pricethat farmers pay for inputs into their farmingoperation through time. The FIPI indicatesinput costs to farmers have increased 3.0%since the second quarter of 2014.
Note: Farm input price index available to Q1 2018.
CROP COMMODITY PRICES
BarleyCanolaFlaxseedSoybeansDurumDry peasLentils
+9.6%+12.2%-17.0%-16.2%+22.0%
+8.1%-11.0%
Largest Price Changes –May 2018
Long-termΔ Since May 2014
Medium-termΔ Since May 2016
+8.8%+6.8%+4.3%+2.8%
-15.7% -41.3%-63.1%
Page 9
INPUTS & COMMODITY MARKETSCOWS, HOGS, PULSES
Source 1: https://business.financialpost.com/commodities/agriculture/how-tariffs-and-theyre-u-s-ones-are-already-hurting-one-canadian-companySource 2: https://www.cbc.ca/news/canada/manitoba/omnitrax-hudson-bay-rail-churchill-rail-line-repairs-flood-1.4739604Source 3: Bloomberg – Ag Futures as of 4:18 PM EST July 14, 2018.Source 4: http://www.agr.gc.ca/eng/industry-markets-and-trade/canadian-agri-food-sector-intelligence/crops/reports-and-statistics-data-for-canadian-principal-field-crops/canada-outlook-for-principal-field-crops-2018-06-21/?id=1530054008696
Pulses Market Pressure1
India’s import tariff on pulses (33% on lentils and 66% on chickpeas) has cooled the Canadian pulsesmarket significantly as India is one of the largest importers of Canadian pulses. According to data fromPulse Canada and Globe Trade Tracker, India has imported 87% fewer lentils year over year in April (2018vs. 2017)1.
Canada’s Principal Field Crops Exports4 (kilotonnes)
Total Grains and Oilseeds Total Pulses and Special Crops
2016 – 2017 2017 – 2018(f)
42,1462016 – 2017 2017 – 2018(f)
7,138 4,975(Up from forecast in Q1 update of 4,771)
Updated forecast as at June 21, 2018. Forecast in Q1 update as at February 16, 2018.
44,913(Down from forecast in Q1 update of 46,268)
Futures – Fall 2018 Contracts3
Canola (November)Wheat (September)Soybean (November)Corn (December)OatsLive Cattle (October)
485.10 CAD/MT497.00 USD/bu.834.25 USD/bu.354.75 USD/bu.241.75 USD/bu.107.38 USD/lb.
Futures – July 2018 Contracts*
CanolaWheatSoybeanCornOatsLive Cattle - (June)
532.40 CAD/MT498.50 USD/bu.
1,056.25 USD/bu.398.50 USD/bu.
N/A107.00 USD/lb.
FUTU
RES
CON
TRAC
TS
Note *: As included in MNPCF Quarterly Update –Agriculture – Q1 2018. These quotes on Futures havebeen included for comparison purposes only.
Page 10
3 Primary Producers
Page 11
PRIMARY PRODUCERSLAND VALUE TRENDS
-
500
1,000
1,500
2,000
2,500
3,000
3,500
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Valu
e ($
/acr
e)
Prim
e In
tere
st R
ate
(%)
FARM VALUES VS. FARM CASH RECEIPTS & INTEREST RATES
Average prime interest rate Value per acre of farm land and buildings (Canada)
Source 1: https://www.ratehub.ca/prime-mortgage-rate-historySource 2: Stats Canada: Table 002-0003: Value per acre of farm land and buildings, at July 1.Source 3: http://business.financialpost.com/news/economy/bank-of-canada-likely-to-take-cautious-path-with-two-more-interest-rate-hikes-this-yearSource 4: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/top-economic-trends-of-2018-farmland-values.htmlSource 5: https://www.fcc-fac.ca/fcc/about-fcc/reports/2017-farmland-values-report-e.pdf
Key external drivers affecting agricultural industry performance in Canada include: commodity prices, interest rates,consumer preferences, growing season conditions and results, and farm land values.
The chart above highlights growth in farm land and building values. Values have increased significantly along with farmcash receipts over the last 15 years while interest rates have displayed a downward trend.
On July 11, 2018 the Bank of Canada hiked its key interest rate another 0.25%, the fourth such rate hike in the last twoyears. This has widespread impact with the farming sector feeling particularly strong effects due to high levels of debtfinancing. Increases in interest rates result in larger interest payments on outstanding debt, which may impact farmlandvaluations. While rates have increased recently, they remain at near all-time lows. Continued industry consolidation maycounteract any valuation impacts due to interest rates.
The 2017 FCC Farmland Values Report published April 23, 2018 indicates strong growth in value for 2017, with an 8.4%increase for farm land in Canada, with boosts of 10.2% in Saskatchewan, 7.3% in Alberta, and 5.0% in Manitoba5.
Since 2000, interest rates have
decreased 4%, while farm values per acre
increased 240%*. *Using Bank of Canada prime interest rate and information in graph above.
Farm Values Continue to Rise
1 2
Farm Cash Receipts (Canada)
-
500
1,000
1,500
2,000
2,500
3,000
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Value ($/acre)Prime Interest Rate (%)
INTEREST RATES AND FARM VALUES
Average prime interest rate Value per acre of farm land and buildings (Canada)
-
10
20
30
40
50
60
70
Farm
Cas
h Re
ceip
tsBi
llion
s
Page 12
4 Ag Equipment Manufacturers & Dealerships
Page 13
14
16
18
20
1,000
3,000
5,000
7,000
9,000
Q22013
Q42013
Q22014
Q42014
Q22015
Q42015
Q22016
Q42016
Q22017
Q42017
Q2f2018
RESULTS BY QUARTER
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Farm cash receipts have levelled in recent years with Q1 2018 receipts falling below both Q1 2016 and Q1 2017totals. Farm cash receipts display a defined pattern of drastic annual fluctuations as cash receipts are a laggingindicator of ag equipment sales. Q1 2018 results in ag implement sales appear to suggest a turnaround as all fourcompanies below outperformed their two previous years’ Q1 sales totals.
Farm Cash Receipts and Agricultural Implement Sales
Source 1: Capital IQNote: John Deere has a fiscal year-end of October. John Deere quarterly results based on calendar months were used for presentation purposes to align results with other companies.
Data Table – Farm Cash Receipts and Ag Implement Sales
0
2
4
6
8
10
12
100
150
200
250
300
350
400
Q22013
Q42013
Q22014
Q42014
Q22015
Q42015
Q22016
Q42016
Q22017
Q42017
Q2f2018
Farm
Cas
h Re
ceip
ts
($ b
illio
ns)
Reve
nue
($ m
illio
ns)
Rocky Mountain Equipment (RME) Cervus Equipment (CE)John Deere - Ag and Turf (DE) CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI)Farm Cash Receipts (AB, SK, MB)
Farm Cash Receipts and Ag Implement Sales 2013 2013 2013 2014 2014 2014 2014 2015(Figures in $CAD Millions) Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Rocky Mountain Equipment (RME) 238 273 291 198 242 231 294 220 Cervus Equipment (CE) 244 249 226 167 237 286 289 238 John Deere - Ag and Turf (DE) 8,099 7,425 6,252 8,410 7,608 6,986 5,196 6,997 CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI) 4,784 4,257 4,400 4,089 4,731 4,091 3,941 3,263 Farm Cash Receipts (FCR) 5,826 6,984 6,989 8,776 7,218 7,594 8,459 9,609
2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2f
213 256 286 189 233 223 286 210 237 239 273 220 263 303 335 258 209 295 335 272 231 357 368 265 249 363
6,933 6,100 5,077 7,215 6,141 5,950 4,726 7,937 6,657 7,009 5,240 9,084 N/A3,787 3,257 4,138 2,754 3,645 3,096 3,800 3,126 3,760 3,314 4,063 3,326 N/A7,176 8,242 8,866 10,440 6,832 7,655 8,744 10,515 7,738 8,124 8,296 9,742 N/A
Page 14
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Source 1: Capital IQSource 2: https://www.realagriculture.com/2018/07/rocky-mountain-equipment-acquires-john-bob-dealerships-in-saskatchewan/
Share Price ChangesShare price fluctuations have been increasingly volatile since 2016 with John Deere experiencing the largest fluctuationsin share price increasing over 119% since Q2 2013.
Rocky Mountain Equipment announced the acquisition of John BobFarm Equipment (Tisdale and Outlook, SK) in early July 2018. RockyMountain’s five-year plan unveiled in May 2018 noted acquisitionefforts will be focused in Saskatchewan, while purchases of Case NewHolland dealers in Alberta and Manitoba should be expected2.
Rocky Mountain
Equipment(TSX:RME)
Notable
-80
-30
20
70
120
170
Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 Jul-2017 Jan-2018
Chan
ge (%
)
SHARE PRICE & S&P/TSX INDEX CHANGES1
S&P/TSX Composite Index (̂ GSPTSE) - Index Value
Rocky Mountain Dealerships Inc. (TSX:RME) - Share Pricing
Cervus Equipment Corporation (TSX:CERV) - Share Pricing
CNH Industrial N.V. (NYSE:CNHI) - Share Pricing
Deere & Company (NYSE:DE) - Share Pricing
Page 15
About us – MNP Corporate Finance Inc.
Page 16
MNPCF - TEAM
DUE DILIGENCE TEAM
CORPORATE FINANCE TEAM
Brett FranklinPresidentManitoba
Aleem BandaliManaging Director - Vancouver
Mark RegehrManaging Director - Edmonton
Patrick KhouzamManaging Director - Montreal
Mike ReynoldsManaging Director - Calgary
Craig MaloneyManaging Director – Nova Scotia
Stephen ShawManaging Director - Toronto
Stuart PersonNational Director, Primary Producers
Scott DicksonNational Director, Livestock
Bruce TaitSr. Vice President, Agriculture
AGRICULTURE TEAM
Eric OlsonNational Director,
Farm Management [email protected]
204.775.4531
John Caggianiello – Eastern CanadaManaging Director
Johnny Earl – Western CanadaManaging Director
Page 17
MNPCF - RECENTLY CLOSED DEALS
AGRICULTURE
NATIONAL
MANITOBA/SASKATCHEWAN
Page 18
OTHER RECENT INDUSTRY M&A TRANSACTIONS
Source: Capital IQAll figures are in $CAD unless otherwise indicated.
• Rocky Mountain Dealerships Inc. (TSX:RME) enteredinto a definitive agreement to acquire John Bob FarmEquipment for $13.4M.
• Rocky Mountain Dealerships Inc., through itssubsidiaries, sells, leases, and provides support servicesfor new and used agriculture and industrial equipmentprimarily in Canada and the United States.
• John Bob Farm Equipment operates as a dealer of newand used farm equipment in Tisdale and Outlook, SK.
Announced July 3, 2018
Industry Ag Implement Dealerships
Transaction Value (TV) 13.4M
TV/Revenue Not disclosed
• Maple Leaf Foods Inc. (TSX:MFI) entered into definitiveagreement to acquire select poultry assets fromCericola Farms.
• Select poultry assets include two poultry plants andassociated supply from Cericola, located in Bradford,Ontario and Drummondville, Quebec.
Announced June 28, 2018
Industry Processing
Transaction Value (TV) Not disclosed
TV/Revenue Not disclosed
acquired
acquired
• MNP Corporate Finance acted as exclusive financialadvisor to CanMar Grain Products Ltd. in structuring andnegotiating this transaction with Hokanson Capital Inc.
• Hokanson is a family owned private investmentcompany with current investments that include a largeagriculture portfolio.
• CanMar is a vertically integrated, value-added, flaxseedagri-food business located in Regina, Saskatchewan.
Closed Nov 30, 2017
Industry Processing, distribution
Transaction Value (TV) Not disclosed
TV/Revenue Not disclosed
acquired
• MNP Corporate Finance Inc. acted as exclusive financialadvisor to Fiskel Farms Transport Ltd. in structuring andnegotiating this share transaction.
• Wright Spud Farms Inc. is a large potato and grainfarming company based in the Carberry area and hasbeen named as one of McCain Foods' Top 10 Producers.
• Fiskel Farms is a 3,300-acre potato and grain farm witha McCain Foods grower’s contract located nearCarberry, Manitoba.
Closed April 15, 2018
Industry Farming
Transaction Value (TV) Not disclosed
TV/Revenue Not disclosed
Wright Spud Farms
Acquired
Fiskel Farms
