Elders had been in serious talks with Delta Agribusiness for nine months about buying the private equity backed business, snapped up for $475m.
Owners have tested the prospect of a float or sale since 2022, but the process ended without an outcome on either front.
A month ago, Macquarie-advised Elders entered exclusive talks, after Japan’s Sumitomo, was around the hoop.
The deal sees Delta Ag take 22 million Elders shares worth $190m or $8.52 each in payment, making it an owner of a 10.5 per cent Elders stake for at least 15 months when it is allowed to then sell.
The understanding is that in the final days before a transaction was signed, management from both sides got together and nutted out the terms.
Initially, the asking price for the business, which was up for sale through UBS, was $600m, but the understanding is that there was a willingness from owners to accept an offer around the $500m mark.
DataRoom reported in 2022 that Elders was seen as a possible buyer.
Parties remain confident that the Australian Competition and Consumer Commission will give the transaction its blessing, despite some earlier suggestions otherwise.
The industry giant in the rural services space is the Canadian owned Nutrien, which previously purchased the Australian listed Ruralco, and has at least 40 per cent of the market.
Elders and Delta Ag combined would have almost 20 per cent and the argument for the transaction completing is that together they would be a more powerful competitor against the main industry player, that is internationally owned, and more effective at driving down prices for customers.
Elders had said it would only embark on a transaction if it added extra value to its earnings per share before synergies were factored in.
And this year, its own metrics reached a point where a deal with Delta Ag at the agreed priced would be EPS accretive, which was why it opted to move when it did.
The Incitec Pivot fertiliser distribution business is now likely off the agenda for an acquisition, but the $NZ126m, New Zealand-listed PGG Wrightson is 12.5 per cent owned by Elders and its share price has been on the decline, meaning it may soon be the right time for Elders to acquire its industry peer.
Delta, which is 24 per cent owned by Odyssey Private Equity, and the remainder held by management and board members, provides rural products and advisory services through a network of 68 locations and about 40 independent wholesale customers.
Brands include Delta Ag, North West Ag Services, Agrivision Consultants, Aglink David Gray’s, Cox Rural and ARH Agquire Rural Holdings, and operates in the areas of crop protection, seeds, animal health products, fertilisers, fuel and general merchandise.
It also owns an in-house agrichemicals and animal health private label brand, Four Seasons Agribusiness, and has about 45,000 tonnes of fertiliser storage on the east coast.
It considers its farm advisory business to be the cornerstone of its offering.
The deal values Delta at about 11.1 times adjusted EBIT pre-synergies and 8.7 times adjusted EBIT post synergies for the year to June.
Elders says that $12m of synergies annually will be realised over the next three years after the deal, and the geographies where it operates are complimentary.
For the year to June, it delivered $835m of revenue and earnings before interest, tax, depreciation and amortisation of $53m.
Elders will tap the market for $246m by way of a fully underwritten 1 for 5.05 pro rata accelerated non-renounceable entitlement offer at $7.85 per share, a 9.2 per cent discount to the last closing price of Elders.
It will also secure $110m through a new loan, taking debt to EBITDA to two times.
The purchase, set to be finalised by June, came as Elders reported a 6 per cent fall in annual revenue to $3.1bn and a 55 per cent fall in net profit to $45.1m on the back of falling livestock prices, lower crop protection margins and subdued client sentiment.
Elders, which has the divisions of Rural Products, Feed and Processing Services, Agency Services and Real Estate Services, says it remains upbeat about the 2024 summer crop.
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