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−− Overview of 2020 M&As in agri-inputs industry and analysis on corporate strategies
Feb. 4, 2021
By Christina Xie
In the face of the coronavirus (COVID-19) pandemic, mergers and acquisitions (M&As) in the agri-input industry was unavoidably impacted in 2020. However, the effects seem light if judged by number of transactions. According to the incomplete statistics of AgroPages, there were around 60 M&A transactions involving crop protection, crop nutrition, seeds and traits, as well as precision farming, in 2020, a small drop compared to 80 transactions in 2019.
There are many reasons for this decrease, including but not limited to the global economic shock caused by the pandemic, the tightening of credit, blocked face-to-face negotiations, valuation fluctuations, the postponement or termination of due diligence, and companies focusing inwardly.
Despite these unfavorable factors, a considerable number of M&A transactions happened in the industry last year. For most, the due diligence started or was completed before the outbreak of the pandemic, which helped the completion of some transactions.
Although there were no mega-transactions as high as tens of billions of US dollars in 2020 or any M&A cases that could reshape the industry, some new industry trends exposed by these M&As have attracted the attention of industry insiders. In this report we will present our views on two of these leading trends.
M&A in biostimulant segment is game changer
In October 2020, two major high-profile acquisitions of biostimulant companies aroused heated discussion within the industry. The mainstream view is that the prelude of the large-scale acquisitions of biological companies has started, and the biologicals segment will usher in a new round of development.
There are also related doubts, which mainly lie in the comparison with the previous round, mostly in 2012, of large-scale acquisitions of biopesticide companies within the industry. Therefore, what are the similarities and differences between these two rounds of acquisitions of biological companies? Does the acquisition of biostimulant companies conform to the trend or just an addition to the business structures of large companies?
Fig. 1: M&A deals in agricultural biological industry in 2020
Let us briefly review the acquisitions of biological companies in 2020. At the start of October 2020, two large multinational agrochemical companies, American Vanguard Corporation and Syngenta Group, successively announced the acquisitions of Agrinos and Valagro, respectively, without disclosing transaction amounts.
Agrinos is an American biological input supplier with proprietary technology, internal manufacturing and global distribution capabilities. Agrinos has a history of more than 10 years, with biostimulants and crop nutrition products as its main businesses. According to available data, the annual income of the company in 2016 reached around US$7 million.
Valagro is an Italian company with a history of more than 40 years and has a leading position in the biological market with its biostimulants and special fertilizers. The company achieved sales of around $175 million in 2019, with a compound annual growth rate of some 10% in ten years.
The year 2012 witnessed a round of intensive acquisitions of biopesticide companies within the industry, including Bayer CropScience’s acquisition of AgraQuest worth $425 million, BASF’s purchase of Becker Underwood worth $1.02 billion, and Syngenta’s acquisition of Pasteuria Bioscience worth $113 million.
The two rounds of acquisitions of biological companies share the following similarities:
1. The timing of an M&A is related to the development stage of the industry
At the consumer level, the public is paying increasingly high attention to environmental protection and food safety. The long-term use of chemical pesticides and their negative effects on the environment and health have caused the public’s considerable bias and antipathy to chemical pesticides, while their attention to food safety is becoming progressively in-depth and concrete.
At the regulatory level, with the increasingly tight regulation of chemical pesticides globally, many traditional pesticides have been banned or are being phased out.
At the crop planting level, the extensive use of chemical pesticides has led to increasingly troublesome resistance issues. With the ban of many products, there will be fewer options for farmers.
At the trade level, the requirement related to the maximum residences levels (MRLs) of pesticides in food exports to high-end markets, such as Europe and America, is getting higher. Let alone the MRLs can be used as a trade barrier.
It is actually clear that the above points are mutually reliant, are connected to each other, and jointly promote the evolution of crop plant methods and consumption habits.
2. Both segments are experiencing rapid growth and have promising prospects
According to data on research reports, the market value of the global biopesticide market in 2011 reached around $1.3 billion, and annual growth rate stayed at around 15% by the year. From 2001 to 2016, the growth rate of the traditional crop protection market was 3.8%. In contrast, after 2011, the biopesticide market still maintained a high growth rate of 12% to 13%, and its market value totaled $4.4 billion in 2019.1
The biostimulant segment, which came into being about ten years ago, has experienced a rapid development in the past five years. According to the data of market research institutions, the market value of the global biostimulant market in 2017 was $2 billion. By 2022, the market’s value will reach $3.29 billion, almost doubling in growth.2 From 2015 to 2020, the industry recorded a high growth rate of some 13%.
Only in terms of growth data, both segments have the strengths to attract capital. However, in terms of market value, biopesticides account for less than 5% of the global pesticide market and are still questioned about their “overpraised” effects. These may also be unavoidable topics in the development of the biostimulant segment.
3. M&As meet the strategic development needs of companies
It can be seen from Point 1 that consumer demand and the regulatory environment are constantly changing, and companies in the industry need to adjust their strategies accordingly to adapt to changes. In fact, in the decades before 2012, multinationals attempted to enter the biological segment during the era of Bt (Bacillus thuringiensis) products. All major companies were involved in the Bt business, but all left the market soon after.
The reason was because although these products proved generally effective, they were not always as powerful as the multinationals had hoped. Additionally, there was not a great incentive to adopt biopesticides during that time, as the regulatory environment was not as stringent.
The M&A wave in 2012 again aroused the interest of companies in the biological segment. In an interview with AgroPages, Pam Marrone, Former CEO of Marrone Bio Innovations, said that “next-generation” biopesticides have moved beyond Bt and are proving to be revolutionary. These new biopesticides offer a viable alternative and supplement to chemical treatments and have proven in many cases to be as equally effective as their chemical counterparts. This is the real reason for multinationals to enter this segment again.
However, after eight years, there is still doubt about the value contributed by biopesticide companies acquired from their previous work to the business development of multinationals. The efficacy and cost performance of biopesticide products are also still questioned.
During this period, mergers and acquisitions among large multinationals also took place in the industry, and, consequently, there were few large-scale acquisitions of biological companies. Nowadays, with the gradual completion of internal integration within companies after mergers and acquisitions, the industry shows some new characteristics of development. Multinationals are again making the effort to explore new possibilities in the biological segment.
These two rounds of acquisitions of biological product companies have following differences:
1. The different nature of biopesticides and biostimulants has greatly changed the concept of crop planting
Before making further explanations, let us start with a picture, to assess the coverage of biological products industry. Simply out, biopesticides are used mainly for solving biotic stresses, such as diseases and pests, in crops, while biostimulants are mainly used for alleviating crop losses caused by abiotic stresses, such as drought, extreme temperature, high soil salinity and heavy metal toxicity.
To make it plain, a biopesticide likes an antibiotic prescribed by a doctor, which eliminates pathogenic factors, while a biostimulant likes a vitamin prescribed by a doctor, which functions to boost the body’s ability to resist diseases. From solving problems passively to improving crop resistance proactively, it not only represents a technological progress in agriculture, but also reflects a great change in the concept of crop planting management.
Fig. 2: Biological product types
2. The background of industry development has changed
The acquisition of biopesticide companies by multinationals eight years ago embodied the latter’s pursuit of innovative products and their forward-looking strategy for company development. These companies also responded to changes to the planting needs of farmers and the habits of consumers. This round of acquisition of biostimulant companies in 2020 was also closely driven by these basic factors, but tremendous changes have happened to every factor in recent years.
According to CS Liew, a consulting expert in the field of mergers and acquisitions of agrochemical companies, the two rounds of M&As are quite different. The past ones were done with little track record in terms of where biopesticides demand was headed. Neither was the performance of earlier editions of biopesticides, except for the widely used Bt products, and regulatory aspects any clearer. Hence, M&A deals were few and far between.
In contrast, in 2020, the EU and even some developing countries planned to ban many chemical pesticides, which prompted real interest among crop protection players to get into biologicals.
In addition, the demand for biological products and solutions is also driven by consumer preferences. The traditional belief that only chemical pesticides can control pests and diseases is changing. Consumers are paying more attention to the source of the foods on their tables, pesticide residues and the traceability of the crop planting process, which forced growers, agri-input manufacturers, food processors and distributors to shift part of their attentions from focusing on food ingredient labels and pesticide residue control to caring more about how to improve the transparency of production practices and supply chains.
For agri-input manufacturers, public education and public opinion are always critical to the success of a product newly introduced in the market. Changes to consumer preferences and prejudices against chemical products may benefit these companies in terms of public education of biological products, and, in turn, the public’s positive opinion on biological products is helpful to creating a positive regulatory environment.
Look at it from the grower's point of view, because of limited arable land resources, the high cost of agri-inputs, such as seeds, fertilizers and pesticides, and residue standards, growers have to adopt more advanced planting management practices to maximize their return on investment, and, consequently, biological products have become increasingly acceptable.
The development of the discipline witnessed a surging number of published studies on biostimulant products in the last two years. In addition, there are also many related scientific conferences, and the legal framework and related legislations are constantly being improved. Therefore, the changes to factors related to the industry’s development background are conducive to the development of biologicals in a healthier and faster way, and have helped speed up the integration of the industry.
3. Multinationals have different reasons for acquiring two types of companies
From the analysis of the structure of the biologicas segment presented in the first point above, it can be seen that multinationals, through the acquisition of biopesticide or biostimulant companies, aim to participate in the biological product market to improve their respective business portfolios and create collaborative linkages with existing businesses, to ultimately realize sustainable development with the addition of new businesses.
With the same general goal, the two rounds of mergers and acquisitions are different in specific aspects, as explained below.
Some commonalities can be found from the acquisitions in 2012. Multinationals acquired businesses mainly to enter some high value-added business sectors, such as vegetables and fruits, as well as to expand seed treatment business, proven by the biopesticide products launched by multinationals in recent years, which mostly target high value-added crops and seed treatments.
For field crops, seed treatments have progressed in terms of the use of biological products. With the rising cost of seeds, especially GM seeds, growers are more willing to increasingly investm in seed treatment, to ensure better crops. For various biopesticides and applications, seed treatment is the fastest growing branch globally. It is predicted by some insiders that all seeds will be treated with biological products in the future.
Furthermore, for multinationals, acquisition is a fast way to enter the field of novel biopesticides. According to American Vanguard Corporation, biopesticides compete directly with agrochemicals. One of the reasons for large companies to acquire biopesticide companies was to quickly absorb competitors and mitigate competitive pressures.
On the other hand, the market value of the biopesticide market was only about $1.3 billion eight years ago, shared by more than 100 small and medium-sized companies. It was a highly dispersed market where many companies usually only offered one or two products, and was not conducive to the growth and large-scale development of the biopesticide segment, but mergers and acquisitions could quickly change such a landscape.
Regarding the acquisition of biostimulant companies in 2020, the acquirers all mentioned that the purpose of their acquisitions was to provide growers with additional complementary choices of products and technologies to effectively and sustainably care for their crops, through managing resistance, enhancing soil health, reducing residue in crops, and addressing consumer demands.
Syngenta said that the investment also formed part of its $2 billion commitment to help farmers address the effects of climate change and improve agricultural sustainability was part of its Good Growth Plan and was fully in-line with its strategy.
The American Vanguard Corporation said that in addition to maintaining its leading position in the crop protection sector, it intended to expand its global participation in bio-nutritional inputs, which contributed to improving soil health, and the acquisition of Agrinos was a major step toward realizing that strategic objective. With the adjustment and optimization of their development strategies, multinationals have a clearer understanding of their future directions, and acquisitions are more targeted. The possible positive impact of acquisitions can be readily foreseen than in the previous round.
The nature of the acquirees in the two rounds of acquisitions is also different. Many biopesticide companies acquired in the last round were research companies acquired by multinationals mainly to boost their R&D strength. However, many target biostimulant companies during this round, such as Valagro, Agrinos and Fertiláqua, were long-term active market players and were suppliers of biological products with proprietary technologies and internal manufacturing and global distribution capabilities.
Nevertheless, in the face of rising industry demand, these relatively small companies encountered some problems in their development. Under increasingly competitive market conditions, companies need to invest more in product research, registration, marketing and channel coordination to achieve their goals.
However, according to Idai Nature, the industry is expanding constantly, and the milestones established in a strategic development plan are hard to achieve, even if a company performs well and depends on its own organic growth. Therefore, the inorganic growth harvested by acquisitions is very important to realizing the coordinated growth of channels, markets and research.
In an interview, Giuseppe Natale, Co-Founder and CEO of Valagro, explained, “We know that our size is not sufficient to face the challenges posed by agriculture. Our decision to join Syngenta Crop Protection will allow Valagro to be competitive in the global market in the long term.” For an acquiree, it is beneficial for its long-term development on the strength of the capital support and platform advantage of a big company. It can be deemed that this round of mergers and acquisitions ended up with a win-win outcome.
The acquisition of biostimulant companies, led by Syngenta and other multinationals, will encourage more related future transactions in the industry. Corey Huck, Head of Global Biologicals for Syngenta Crop Protection, said that the acquisition of biostimulants is a game changer.
“The acquisition of Valagro by Syngenta is an example of a trend that will characterize the sector in the coming years. The current scenario will pave the way for mergers and acquisitions in the industry, led by major market players. International agrochemical groups have an operational dimension and investment capacity that enable them to effectively face new global challenges and changes to agriculture technology business,” Natale said.
Vertical mergers and acquisitions in the industrial chain may follow. As can be seen from the M&A record of multinationals, when M&As are mainly for expanding business scale and presence to a certain degree, multinationals will extend to the upstream and downstream of the industrial chain, to improve their pricing power and the efficiency of the whole supply chain.
Chen Naiqi, General Manager of Biolchim China, told AgroPages in an interview that, although the biostimulant segment is still at its initial stage of development, players that have entered the market have experienced competition in the pesticide and fertilizer market. Therefore, these players know that core competitiveness lies in raw material resources and technology.
Biolchim is present in more than 80 countries. In the course of its business development, the company has consolidated its global resources and controls core raw materials used to make biostimulants, which are seaweed, humic acid and amino acid. Chen added that organics could mean instability, as they can be unstable unlike inorganics, which are stable. Organic products must be stable as commercial products, so raw materials need to be better processed and managed to ensure the quality of all product batches.
Commercial investment and the introduction of capital will accelerate the development of biostimulants. Modern biostimulants are complex mixtures derived from many types of raw materials by highly diversified production processes, so they are expected to be usable in a wide range of possible biological activities and be safe. Many innovators and investors regard the development of biostimulants as a way of discovering new biologically derived molecules on a large scale.
Biostimulants are viewed by many innovators and investors as a mechanism to conduct the broadscale discovery of novel biologically derived molecules. As much as the exploration of marine organisms, plants and microbes from diverse ecosystems has led to the discovery of novel pharmaceuticals, the development of biostimulants from the broad range of source materials also offers significant promise of discovery.
Sources available to us explained that, currently, there are no clear conclusions about the mechanism, definition, classification, legislation and supervision of biostimulants. For example, the ingredients of most biostimulants derived from organisms will change with the production season and species, as well as the physiological state and growth conditions of source organisms.
Indeed, there is an implication in the marketing of many biostimulants that stress conditions experienced by the plant or microbe utilized to produce the biostimulant results in the production of stress metabolites and amino acids with consequent beneficial effects on plant response. In the absence of knowledge on the functional component of a biostimulant, changes to composition over time and between batches and commercial sources cannot be predicted.3
Although there is no solid evidence about the benefits of biostimulants, and the mode of action of these products is still uncertain to a great extent, there is no doubt that the biostimulant market is huge and increasing rapidly.
Continued investments by commercial entities in biostimulant research and product development will serve as a critical driver of discovery in the realm.
Birth of the Syngenda Group initiated a three-way race between China, the US and Europe
In a recent readers survey by AgroPages that selected the most influential M&A events of the year, the formal establishment of Syngenta Group obtained the second highest number of votes.
In June 2020, Syngenta Group Co. Ltd. announced the official launch of the Syngenta Group, a new global leader in agricultural science and innovation. Under a single entity, it unites the strengths of Syngenta AG headquartered in Switzerland, ADAMA based in Israel, and the agricultural businesses of Sinochem based in China.
Based on the performance of all business units, the Syngenta Group achieved sales of $23 billion in 2019. From its inception, it has been a global market leader in crop protection, ranking number three in terms of seeds and being the market leader in fertilizers in China. Through its Modern Agriculture Platform (MAP) Farmer Solution Centers, it is also the leading agriculture services provider in China.
Syngenta Group belongs to ChemChina, a government-linked company that aims to merge with another government-linked company, Sinochem Group Co., Ltd. (Sinochem). With the injection of agrochemical assets of the two Chinese chemical giants and the help of accompanying state-owned capital, the Syngenta Group became a company with the most complete coverage of the industrial chain in the agrochemical industry, including pesticides, fertilizers, seeds and digital farming, and is undoubtedly an “aircraft carrier” of the agrochemical industry.
Fig. 3: Corporate structure of Syngenta Group
Source: Syngenta Group
Historically, the US and Europe are the cradles of innovative technologies and products in the agri-input industry. China is a big pesticide country and has an absolute advantage in the production of pesticide technicals and some upstream intermediates. However, China is weak in the development of new pesticide molecules and lack of high-end pesticide formulation products and independent brands in the terminal market. Basically, China has no pricing power in the industrial chain, and the Chinese pesticide industry is deemed as being “big but not strong.” The newly launched Syngenta Group is expected to lead China’s agrochemical industry, to reverse its previously low-end position in the industrial chain and achieve development by virtue of the Syngenta Group’s strong R&D capability and complete channel and terminal market structure.
In the future, China, represented by Syngenta Group as its core agrochemical company, Europe, represented by Bayer and BASF, and the US, represented by Corteva and FMC, will form a new three-way race in developing agrochemical products, creating digital farming structures, and exploring terminal markets.
1. MarketsandMarkets. AGI 2716: Biopesticides Market by Active Ingredient (Microbials & Biorationals), by Types (Bioinsecticides, Biofungicides, Bionematicides & Bioherbicides), by Application, by Formulation, by Crop Type & by Geography—Global trends & forecasts to 2019; MarketsandMarkets: Dallas, TX, USA, 2014.
2. MarketsandMarkets. Biostimulants Market by Active Ingredient (Humic Substances, Seaweed, Microbials, Trace Minerals, Vitamins & Amino Acids), Crop Type (Row Crops, Fruits & Vegetables, Turf & Ornamentals), Formulation, Application Method, and Region - Global Forecast to 2022. PUNE, India, October 26, 2017, published by PRNewswire.
3. Oleg I. Yakhin1, Aleksandr A. Lubyanov, Ildus A. Yakhin and Patrick H. Brown. (2017). Biostimulants in Plant Science: A Global Perspective. Front. Plant Sci., 26 January 2017 |https://doi.org/10.3389/fpls.2016.02049
This article was initially published in AgroPages ‘Annual Review 2020’ magazine. Download it to read more articles.
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