1H 2019 Agribusiness M&A Report

In June, Purdue’s Ag Barometer, an index tracking U.S. farmer sentiment on current and future economic conditions, dropped to its lowest level in almost three years, only to be followed by its largest one-month increase since its inception in July. “The agricultural economy weakened considerably this spring” said James Mintert, the barometer’s Principal Investigator and Director of Purdue University’s Center for Commercial Agriculture. However, the coinciding relief that the difficult spring was finally over, coupled with the Federal Crop Insurance “Prevent Planting” program, were likely contributors to the dramatic sentiment turnaround. Corn and wheat futures prices responded to lower anticipated supply by increasing approximately 25% and 15% respectively, by the end of June. Soybeans can be planted later in the season than corn which resulted in less dramatic planting delays, and markets were up only slightly over the last three months. Additional pressure to the soybean market is coming from China’s 25% tariff on U.S. soybeans coupled with reduced demand by the Chinese pork industry as it battles to contain a major outbreak of African Swine Fever; a highly contagious disease with no cure or treatment other than containment by culling. An estimated 1.2 million hogs have been euthanized in China since the outbreak began. Rapidly deteriorating diplomatic relations between Canada and China during the first half of 2019 have also pressured Canadian crop and livestock commodity markets, such as canola, pork and beef. In March, China halted all canola sales from Canada based on an unspecified “quality” issue, and in June, halted all beef and pork imports because it claimed the Canadian government inspection system had failed to detect the presence of a banned feed additive and inauthentic veterinary certificates. China represents 40% of Canada’s canola export market and approximately 20% its pork exports. SDR tracked 97 transactions involving businesses participating in and serving the Agribusiness Industry during the first half of 2019, with a median multiple of 2.1x revenue. This compares to 118 transactions, with a median multiple of 0.7x in the second half of 2018 and to 117 transactions, with a median multiple of…