Apr. 19, 2019
Vice President, Investment
Banking Advisory, EY in India
I was introduced to Mr. Akhil Agarwal, Vice President, Investment Banking Advisory, EY in India at a recent workshop in Singapore
. The focus of the workshop was to discuss opportunities for Chinese and Indian agrochemical companies to build joint ventures in India. We took this opportunity to discuss the key happenings in the sector and what the future agribusiness landscape could potentially look like.
While most of us are aware of EY being one of the global “Big 4” firms in assurance, tax, transactions and advisory services, the objective of my interaction with him was to learn more about EY’s capabilities in the agribusiness landscape in India and globally with a specific focus on M&A and joint venture transactions. Below are the excerpts from my interview with him.
Could you please introduce the services you provide the agribusiness industry?
Globally, EY has an agribusiness network of more than 4,000 professionals to serve our clients in the agriculture industry. We work with some of the leading agribusiness companies across all subsectors including seed and crop protection, fertilizers, animal feed, livestock, dairy, agricultural equipment, retail, processing, precision agriculture and agricultural technologies etc. We advise clients on mergers, acquisitions, capital raisings, business transformation and performance improvement by providing support on growth strategy, new market entry, supply chain transformation, precision agriculture and digital disruption. In transactions, we provide end-to-end transaction advisory along with the in-house expertise in strategic origination, industry coverage, corporate finance, valuation, business modelling, due diligence, transaction structuring, restructuring, debt advisory, capital markets, tax and assurance. We are, currently, the mergers and acquisition (M&A) advisors for some of the largest agribusiness companies in the world.
I am part of EY India’s Transactions Advisory Services practice, where I am specifically aligned to its Investment Banking Advisory team that specialises in advising on transactions in the chemicals and agribusiness sectors. We have a strong sector presence in agribusiness and have developed a strong and relevant track record in successfully executing several mid and large-sized M&A and private equity transactions.
What are the advantages you offer in providing transaction advisory services compared to your competitors especially in the agribusiness space?
We have a robust infrastructure in India and globally. We have a dedicated team focusing on M&A in this sub-sector since the last many years and this gives us unparalleled depth and breadth in a highly nuanced space like agribusiness. We are the trusted advisors of many leaders of various firms. Our regular interactions with them give us a deep insight into their business strategies and adds to our knowledge and experience of the sector.
Further, due to the comprehensive and integrated array of market leading services that our various cross-functional teams provide, we are able to collaborate well and provide for a comprehensive solution to the unique challenges posed by complex transactions. Our global agribusiness team is comprised of fully networked senior professionals who are industry veterans. We are therefore aligned by ecosystem, region and core agribusiness accounts.
Lastly, we have a deep focus on technology led disruption and how it impacts an organization’s M&A strategy. For example, globally EY and Microsoft have an alliance that combines EY’s deep insights and experience in disruptive industry trends, new business models and evolving processes with Microsoft’s scalable, enterprise cloud platform and digital technologies. This partnership has been extended to bring innovative digital solutions to the agribusiness industry and comprehensively address the agribusiness value chain. Insights gained due to initiatives such as these enable us to provide a unique perspective to our clients when advising them on transactions.
Could you please share with us some success stories of M&A deals in the agribusiness sector in which EY played an important role during the deal?
From an India standpoint, EY is the most active Agribusiness M&A advisor and has advised on the maximum number of transactions in this space. Some of our marquee deals are mentioned below:
||We advised Syngenta in selling 3 of its market leading insecticide and fungicide brands as a remedy to get the Indian anti-trust authorities to approve the merger between Syngenta and ChemChina
||We advised Syngenta in divesting a high quality branded seeds portfolio (sorghum, pearl millet and fodder) identified as non-core
||We advised Maharashtra Hybrid Seeds Co Ltd (Mahyco) in its acquisition of Quton, a sub-Saharan company focused on research and development, production and distribution of cotton seeds across Africa
||We advised Hyderabad Chemicals, a mid-sized Indian agrochemical firm, in the sale of majority shareholding to Nihon Nohyaku Co Ltd, a large Japanese chemical manufacturer
||We advised Crystal Crop Protection, one of India’s leading agrochemical companies in raising private equity from Everstone Capital
||We advised Sharda Cropchem, a global agrochemical company that has carved a leadership position for itself in certain highly developed markets and molecules, in raising private equity from Henderson Equity Partners
I’d also like to add that an equal (or maybe more) number of transactions have fallen through and have provided us with invaluable experiences and insights. As any investment banker would vouch, this is part and parcel of our business and it is learnings from each of these failures that we have adopted in our subsequent projects to maximise certainty of successful deal closure.
What are the key recent trends in agribusiness in India?
The most important macro trend in agribusiness in India today is that there is a broad-based realization that we need to increase farmers’ income that has led to an unprecedented increase in the Government’s budgetary allocation to the agriculture sector. Further, the adoption of yield enhancing inputs, sustainable farming practices and effective market linkages to ensure that the farmer obtains a fair price for her produce are set to receive a great impetus. The push towards horticulture from cash crops, increased focus on soil health, water conservation and government reforms in the APMC (Agriculture Produce Market Committee) have been aimed at achieving this objective. These trends are driving growth in agribusiness in general and large transactions in seeds and crop protection in particular.
At the consumer level, people are now becoming a lot more aware of what they consume and where it comes from. This is driving growth in business models that focus on clean / natural ingredients, supply chain rationalization, farm digitization and traceability. We have a specific focus on ag tech and firmly believe that technology enabled agriculture goes much beyond e-marketplaces. While we have not yet seen large deals in this space in India, we are closely tracking developments in seed coating, gene-editing, pest-resistance management technologies, automation of data collected on-field and intelligent storage for timely retrieval, hyperlocal distributed farming, etc.
What are the key issues that are currently impacting the global agrochemicals industry and what is driving transactions in this space?
As has been evident since the last few years, the patent cliff in agrochemicals has resulted in mid-sized players competing on a level playing field with large agrochemical firms when it comes to exploiting the large opportunity in recently off-patent molecules. Thus, (at the risk of generalizing) the value of having a branded generic platform having significant market share backed by proprietary registrations is probably higher today than the potential value derived by investing huge sums in research and development (R&D). This shift has of course manifested itself in significant industry consolidation as is evident in the three global mega-mergers and their follow-on impact due to spin-offs and divestments driven by anti-trust authorities.
On the supply side, investment in the global manufacturing is undergoing a reform phase due to China’s “blue sky” policies that have created some concerns regarding availability and pricing. With the aim of encouraging local manufacturing under “Make in India”, India too, is making changes to its agrochemical registration norms to reduce imports and expedite approvals for indigenous manufacturing.
We believe that the next wave of industry consolidation will be driven by portfolio rationalization by the larger agrochemical firms, R&D collaborations driven by need to manage risk associated with investing large sums in R&D and high growth in niche segments like bio-stimulants due to increasing demand for “organic / clean label”, which some equate with “pesticide free”. All these trends are expected to drive significant transaction activity in the near and medium term.
You recently attended a workshop specifically aimed at the possibility of joint ventures between Indian and Chinese agrochemical companies. What do you think are the key opportunities and challenges in successfully executing cross border transactions in India?
India is an open economy with a vibrant and entrepreneurial private sector. Successive governments have consistently liberalized regulations and eased excessive regulatory controls over foreign capital which has resulted in permissibility of 100% FDI in most sectors today. India has also significantly improved its ranking in the World Bank’s Ease of Doing Business Index (jump of 23 positions against its rank of 100 in 2017 to 77 in 2018). There is a large opportunity for foreign investors to address the domestic Indian market across multiple industries. Indian business houses are well established and have significant local expertise and a global partnership mindset. There are multiple success stories across sectors where Indian companies have partnered with large global MNCs as well as mid-sized companies of other countries. The seed and agrochemical sectors have seen marquee cross border transactions and strategic partnerships over the years and India continues to be a great investment destination for global companies in the space.
Some of the key challenges include lack of quality public infrastructure, certain bureaucratic delays in processing specific approvals, hurdles to large scale land acquisition, etc. Some of these can be addressed by adequate and timely planning, partnering with the right local companies and / or seeking expert advice upfront.
With the global population expected to touch 9.7 billion by 2050 what do you think are the key transformation areas in agribusiness that will be imperative to ensure global food security? Where does a global organization like EY see itself in this effort?
Clearly the future of food and agriculture involves greater technological adoption. Closely aligned with the above is the objective of using agriculture as a tool to lift many millions out of poverty. EY’s vision is embedded in building a better working world. Successful businesses historically have been able to meet both objectives and delivered value to all stakeholders – whether the technology providers, farming communities, consumers, employees or shareholders. Another vital factor is to improve market linkages and provide greater market access to local, small holder farmers, thus integrating them into the value chain, incentivizing them to increase productivity, adopt technology and facilitate growth of better quality crop.
We see ourselves as a global, cross-functional agribusiness industry growth enabler. EY has the largest global network of agribusiness professionals spread out across all key growing, trading and consuming markets. By proactively identifying potential market trends using proprietary tools and detailed analysis, we have built credibility with key decision makers in this fraternity. Our deep engagements with our clients help not just in driving their organic and inorganic growth strategy but also in navigating transformative changes in the technological, business and regulatory environment that fundamentally impacts how organizations work, interact and compete.
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