Crowe Horwath Webinar

“Trends in Agribusiness M&A”

Douglas G Sterkel

Managing Director

AgriCapital Corporation

July 19, 2011

1

I. Introduction

II. Industry Drivers & Agribusiness Market

III. Consolidation Trends

IV. Mergers and Acquisitions Activity

2

Introduction

Founded in 1983 to meet the financial advisory needs of agribusinesses not being met by the traditional investment banking community.

Focus and advisory services:

• Mergers, acquisitions & divestitures

• Private placements of equity and debt

• Corporate finance consulting, including valuations

A member of the Financial Industry Regulatory Authority (“FINRA”) and a Registered Broker Dealer

AgriCapital is an independent, specialized investment bank that works exclusively within agribusiness.

Introduction

Representative Clients

• Family owned / privately held agribusinesses

• Small-cap and middle market public companies

• Multinational agribusinesses

• Private equity & financial sponsors

• Cooperatives

Global focus & client base

• North America

• Europe

• Central and South America

• Australasia & Asia

AgriCapital serves the agribusiness middle and lower middle market.

Transaction Experience*

• Animal Health & Nutrition

• Biotechnology

• Crop Inputs

• Crop Protection

• Grain and Oilseeds

• Equipment / Manufacturing

• Financial Services

• Precision Agriculture

• Produce & Vegetables

• Proteins

• Seed

• Turf & Ornamental

* Does not include all sector experienceJuly 18, 2011

AgriCapital - Introduction

Consolidation is occurring across the agribusiness value chain from “farm to table”.

• Increased globalization

• Increased capital needs

• Increased risks & complexity

• Issues with succession planning

Capital is flowing into agribusiness from Wall Street, private equity and hedge funds.

Common Themes in Agribusiness : Increased M&A activity & investment focus.

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I. Introduction

II. Industry Drivers & Agribusiness Market

III. Consolidation Trends

IV. Mergers and Acquisitions Activity

Industry Drivers

Demand• Creation of a global middle-class is driving protein

demand– China, South Asia, & India

• Global population growth– 9 billion projected by 2050

• Competition for grain Supply

• Arable land is limited• Available water for irrigation is limited

Agribusiness is going through a dynamic period and a very favorable economic / investment cycle.

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Market Reaction to Industry Drivers

Unprecedented interest in agribusiness by Wall Street and increased M&A activity.

Source: Capital IQ. Includes data on a basket of public agribusinesses deemed representative by AgriCapital.

Public Agribusiness Relative Stock Prices

SignificantM&A Activity

SignificantM&A Activity

MinimalM&A Activity

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I. AgriCapital Overview

II. Industry Drivers & Agribusiness Market

III. Consolidation Trends

IV. Mergers and Acquisitions Activity

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Consolidation Trends

Globalization of agribusiness is escalating• Companies are seeking economies of scale to

maximize efficiency and take as much cost out of the system as possible.– e.g. Agrium and Helena’s numerous purchases of regional crop

input distribution companies.

• Governments seeking “guaranteed and stable” food supplies for their people.– e.g. Asian companies, in cooperation with government, developing

relationships with US companies to source US grain.

• Increased sourcing and competition from international agribusinesses.

Agribusinesses are consolidating and becoming more global.

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Consolidation Trends

Increasing working capital and debt requirements are driving M&A activity in certain sub sectors.

• Inventory & accounts receivable

• Margin calls

Some “local” companies are outgrowing the capacity of their local banks.

Capital requirements of agribusiness are increasing dramatically.

SignificantIncreases in working

capital

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Consolidation Trends

Risk, and the necessity for the development of risk mitigation strategies, is driving some M&A activity.

Lenders are requiring hedging strategies due to the increased value and volatility of commodities and inputs.

Some business owners do not feel comfortable managing or outsourcing hedging strategies.

The risks and business complexities are rising in agribusiness.

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Consolidation Trends

The average age of agribusiness owners continues to increase.

Many business owners do not have descendents that are willing or capable of managing an increasingly more complex agribusiness.

Capital availability of descendents may be limited.

Problems with divergent and extended shareholders, sometimes 3 or 4 generations removed from the business operations.

Many agribusinesses face succession issues & difficulties.

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ClientSeller/Transaction

OverviewBuyer Motivations

$60 million revenue, profitable, 90+ year old ag manufacturing company with over 40 3rd and 4th generation family shareholders and no ability for family succession. Sold to Kuhn, a subsidiary of Bucher Industries (Swiss conglomerate).

• Expansion of global footprint

• Access to dealer network

• Synergistic product lines

$25 million sale (closing 7/22/11) of Digital Angel’s Destron Fearing animal identification business to Allflex. Digital Angel faced significant working capital constraints.

• Growth of business through better capitalization

• Manufacturing synergies

• Presence in swine and companion animals

Rapidly growing, profitable, closely held genomics testing business sold to Neogen. Owners believed that the business needed to be consolidated with a larger company with more global market access to be most competitive.

• Ability to globalize and expand into new product area

• Increase profitability through corporate systems and management

PHC (PHC: LSX – AIM), divested its US product sales business to Lebanon Chemical. PHC deemed the business non core to its existing development strategy.

• Ability to integrate and consolidate product lines, inventory and manufacturing.

Consolidation Trends

Recent (2010/11) AgriCapital advisory assignments.

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I. Introduction

II. Industry Drivers & Agribusiness Market

III. Consolidation Trends

IV. Mergers and Acquisitions Activity

15

All Industry Transaction Statistics

Worldwide Transactions – All Industries

Total (agribusiness & non agribusiness) M&A deal activity is up in 2011 from the same period in 2010.

Source: CapitalIQ

Approximately a 25% increase in deal value from Q1 and Q2 2010 to Q1 and Q2 2011.

Corporations currently maintaining significant cash positions.

Increased profitability of operating companies due to cost cutting.

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Ann

ounc

ed N

umbe

r of

Tra

nsac

tion

s

Ano

ounc

ed D

eal V

alue

(Bill

ions

)

Announced Deal Value2006 2007 20092008 20112010

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Comparing EBITDA multiples is one of the most common ways to compare valuations of companies.

TEV/EBITDA = Total Enterprise Value / EBITDA

Over the past 5 years, acquirers have been required to contribute more equity as compared to debt when purchasing companies. This generally has effected financial sponsors more than strategic operating companies.

Source: GF Data Resources via GMB

All Industry Transaction Statistics

39.30% 42.10% 46.70%59% 53.30%

42.40% 44.50% 37.80%28.20% 36.50%

18.30% 13.50% 15.50% 12.70% 10.20%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 1H 2010

Historical Equity and Debt Contribution

Equity Senior Debt Sub Debt

5.4x 5.2x 5.1x5.3x

6.2x5.9x

6.0x 6.0x

6.6x6.4x 6.4x

6.6x

7.5x

6.4x 6.5x6.3x

4.0x

4.5x

5.0x

5.5x

6.0x

6.5x

7.0x

7.5x

8.0x

2007 2008 2009 2010

EBITDA Multiples by Transaction Size

$10-25 mm $25-50 mm $50-100 mm $100-250 mm

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Agribusiness M&A Transactions

Agribusiness M&A activity is currently robust, as it was in 2007.

Capital IQ derives its information is from publically announced M&A Transactions and does not include private transactions. Information may also include an announced transaction that did not close. AgriCapital excluded some significant animal health transactions as the human pharmaceutical component skewed the data.

Total Agribusiness Transaction ValueBy Category

2005 – 2011 (2nd Qtr.)

Total Agribusiness Transaction ValueBy Year

2005 – 2011 (2nd Qtr.)

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Public Agribusiness ValuationsLT

M M

ultip

le

Valuations for public agribusinesses remain favorable.

Source: Capital IQ. Includes financial data on a basket of public agribusinesses deemed representative by AgriCapital.

Public Agribusiness TEV/EBITDA Analysis

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Agribusiness M&A activity

Market is generally a “sellers market”

Global Buyers

• It is necessary to completely canvass all possible global buyers, not just domestic buyers, to maximize exit prices.

• Nearly every AgriCapital sell side advisory assignment over the past five years has targeted at least some international buyers.

Strategic buyers, generally speaking, continue to able to pay higher prices for acquisitions due to synergies.

Agribusiness M&A trends - AgriCapital’s perspective.

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Agribusiness M&A activity

The overall buyer due diligence process is getting more detailed and sophisticated.

Environmental due diligence has dramatically increased over the past five years.

Lenders are requiring more documentation and discovery.

Many long time business owners without succesion plans are sensing an opportunity to exit during the current favorable cycle.

Agribusiness M&A trends - AgriCapital’s perspective.

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Private Equity & Agriculture

Private equity money and other financial sponsors have activity entered agribusiness.

• Over 190 private equity firms globally indicate interest in investing in agriculture.*

• 63 firms are currently raising capital for private equity investments in the sector with an aggregate target of USD 13.3 billion.*

Numerous hedge funds and pension funds investing in agribusiness• AgriCapital receiving many calls and requests for meetings

• ETF’s, direct farmland investment, commodity trading

PE firms are focusing on financial metrics that many agribusinesses do not normally track.

How compatible will the shorter (as compared to strategic buyers) time horizons of financial buyers be with agribusiness?

* Source: 2011 Preqin

There is an unprecedented interest in agribusiness by non traditional financial investors. A new frontier?

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Conclusion

Favorable Supply / Demand metrics

Increased globalization

Increased capital needs

Increased risks & complexity

Issues with succession planning

Consolidation is expected to continue across the agribusiness value chain from “farm to table”.

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AgriCapital Contact Information

Douglas G. Sterkel

Managing Director

AgriCapital Corporation

1410 Broadway, Suite 1802

New York, NY 10018

Email: sterkel@agricapital.com

Telephone: (212) 944-9500

www.agricapital.com

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