The huge mergers between Bayer and Monsanto, ChemChina and Syngenta, and DuPont and Dow Chemical represent over $225 billion in combined corporate consolidation—an obvious consequence of which is the number of major global players specializing in agribusiness dropping from six to three. Realignment on this level will create plenty of M&A opportunities for both financial and strategic buyers in the year ahead as smaller units are carved out and spun off to concentrate the growth of certain operations around core assets or to address regulatory scrutiny in the US, EU or elsewhere.
Consider the deal announced late last week by Mitsui & Co. (TYO: 8031) for the purchase of Monsanto’s Latitude as an example of how the consolidation process is already taking shape through strategic cross-border acquisition. The transaction, valued at roughly $140 million, according to Reuters, represents the pickup of significant intellectual property rights from Monsanto as part of the company’s ongoing efforts to restructure its core operations. These rights include the licensing, selling and trademarking of Latitude, a wheat seed treatment fungicide used to combat crop diseases like take-all that are associated with the intensive production of cereals cultivated as monocultures; the product has a virtual monopoly in Europe, per a Nikkei report. The deal with Mitsui is expected to close by the end of January.
The Japanese trading house engages in an array of international business activities, including the ¥25 billion (~$213.7 million) to ¥30 billion (~256.4 million) earned annually through the sale of agrichemicals produced by the likes of Nippon Soda and Kumiai Chemical Industry for European markets. But the firm hardly operates in this industry alone. Rather, Mitsui is just the kind of buyer for this moment in Big Ag precisely because it’s proven willing to pick up noncore assets from larger companies.
According to the PitchBook Platform, Mitsui has distributed that investment behavior pretty evenly across industries and deal types (VC, PE and M&A), including a 2014 deal with DuPont.
Mitsui investments by industry
M&A Deals
To meet financing needs or pass regulatory muster, other units from each of the agrichemical companies currently undergoing consolidation could similarly be carved out and spun off. That signals a great opportunity for both financial and strategic acquirers to pick up some specialized businesses this year complete with proven concepts like Latitude and, depending on the terms of the transaction or the requirements of the regulators, any intellectual property rights that come with them.
Moreover, consolidation across sectors as in the case of a German chemical maker, Bayer, best known for its aspirin, buying an American fertilizer company, Monsanto, best known for its genetically modified seeds, could also result in an industry-level equivalent to the farm-to-table movement by merging seed, pesticide and fertilizer businesses with makers of farm equipment, companies designing agtech software and even firms dealing in tracts of arable land. Add supply chain and distribution channel management into the mix, and the gap between farming and agribusiness could start to close in 2017.
Article by Adam Putz, PitchBook
