It turns out it is not only Ridley that GrainCorp has been looking at for a possible acquisition, but DeltaAg has been on its agenda as well.
DataRoom understands that the country’s largest grain handler has had conversations about buying the privately held rural inputs business that has recently appointed investment bank UBS for a potential sale, expected to be for a price of up to $600m.
While a float had originally been on the agenda, the understanding is that the owners are now looking to sell up to about 80 per cent or all of the business, triggered by a need for 24 per cent private equity shareholder Odyssey to sell as it winds up its fund.
Both GrainCorp and the Australian listed rival business Elders are believed to be keen buyers, but sources say that a sale to competitor Elders is off the agenda, as DeltaAg’s management remains keen to stay involved.
While DeltaAg would be interested in a sale to GrainCorp, the question is whether it could outbid private equity and even possibly superannuation funds that may line up.
GrainCorp is extremely cashed up after an unprecedented run of three bumper crop seasons in a row, yet management led by chief executive Robert Spruway is very conservative.
On the one hand, now would be the ideal time to buy a business to diversify the business for when it is hard hit by drought or other cyclical challenges that can be a hindrance for investors to commit to the highly volatile agricultural sector.
With exports leveraged to volume, DeltaAg could add some stability.
But on the other hand, GrainCorp has invested in farm inputs before under previous management but staged an exit.
It is unlikely to enter a bidding war with private equity.
The play for another buyout fund is that it could sell the business to Elders for a higher price in about three to five years, but at the same time, private equity firms do not always buy assets off each other and do not like the volatile nature of earnings in the agriculture space.
DeltaAg describes itself as a leading force in rural inputs and advice in regional Australia, offering similar services to the larger Elders.
Its brands include Delta Ag, North West Ag Services, Agrivision Consultants, Aglink David Gray’s, Cox Rural and ARH Agquire Rural Holdings.
The company is chaired by former Nufarm managing director Doug Rathbone and run by co-founder and managing director Gerard Hines and executive director Chris Duff.
It is mostly owned by management, staff and board members and generates about $60m of annual earnings before interest, tax, depreciation and amortisation.
Agriculture businesses are in favour right now given buoyant conditions in the market, with protein, grain and fertiliser shortages offshore partly caused by the Russia-Ukraine conflict.
Its interest comes as GrainCorp is also understood to have made an approach to buy the $687m Australian listed stock feed business Ridley.
Ridley’s share price has recently rallied and given there’s been no news, one can only assume that an offer from GrainCorp for Ridley or to its major shareholder AGR Partners was not considered high enough.
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