Analysis of M&As in Agribusiness Industry in Latin America

Usted puede encontrar la versión en español de este artículo aquí. 'Análisis de las fusiones y adquisiciones en la industria del agronegocio en América Latina'

Over the past five to six years, the global agribusiness sector, especially the agrochemical industry, has experienced many mergers and acquisitions, which created a new global agricultural landscape. 
 

In fact, this wave of merger and acquisition not only swept across the multinational companies that had seized the headlines for long but also dramatically reshuffled the entire industry. Many merger and acquisition cases which have not been made most searched hashtag are underway.
 

Mergers and acquisitions are common in the development of companies, but their strategic purposes and business logic are worthy of analysis and research. 
 

On the occasion of the publication of AgroPages’ Latin America Focus magazine, the author of this report will review cases of recent mergers and acquisitions involving Latin American companies, to explore the strategies and business features of the acquirer and acquiree. 
 

According to the latest statistics released by AgroPages, there were 23 such mergers and acquisitions involving Latin American agribusiness companies (see appendix), including in sectors such as seed, crop protection and crop nutrition, over the past six years. Few major international companies were involved in acquisitions in recent years, and most cases were kept confidential. Therefore, it is difficult to find out the level of investment in these acquisitions. However, their commercial importance is worthy of exploration. 
 

According to the summary, these acquisitions can be divided into the following types:

 

Common Strategies and Mutual Demands
 

Sometimes, an acquisition is like a marriage, where two like-minded people wish to create a promising future together. This is also applicable to two companies. Common strategies (couple with similar temperaments) or perfect mutual demands (couple have complementary temperaments) are the foundations of a successful acquisition that will benefit both parties. However, a successful acquisition not only refers to a successful transaction, but also to the development of the companies in question after the acquisition. 
 

There are two cases of acquisitions of this type. One took place in 2016, when the French InVivo Group acquired the majority of shares in the Brazilian agrochemical company, CCAB Agro. The other happened in February this year, when Mitsui & Co. Ltd. and Ishihara Sangyo Kaisha Ltd. (ISK) jointly acquire 25% of shares of Ouro Fino Quimica (Ourofino), a Brazilian agrochemical company. In both cases, the acquirers were world-class agribusiness companies, while the target firms were leading Brazilian agribusiness companies. 
 

Here is a review on these two acquisition cases. Founded in 2007, CCAB Agro is a top three Brazilian agrochemical company and a well-known part of Brazil’s agricultural cooperatives. In 2011, Nutrichem, a Chinese agrochemical company, invested US$20 million in CCAB’s capital increase and share expansion, therefore, obtaining 7.5% of CCAB’s shares. In December 2016, the French company, InVivo, announced its acquisition of the majority of CCAB’s shares. Later, Nutrichem sold all its shares in CCAB to InVivo.
 

In February 2019, Mitsui & Co. Ltd. and ISK acquired 20% and 5%, respectively, of Ourofino’s shares. By this partnership, all three companies agreed to join hand to contribute to the development of local agriculture in Brazil.
 

CCAB agreed to cooperate with other companies before its collaboration with InVivo, but it failed to achieve growth from this cooperation. But how has it progressed since it merged with InVivo? According to statistics, its sales volume totalled $106 million in 2016, but this figure rose to $170 million in 2017 and exceeded $200 million in 2018. CCAB is a seller of generic pesticides and biopesticides in the south and southeast of Brazil. After gaining the support of InVivo, it has diversified its product portfolio, expanded its businesses from cotton, soybean and corn to other major crops, and marketed its products across Brazil.
 

Within only two years, CCAB doubled its revenue and quickly expanded its business scope and market share, making it a good example of a successful follow-up integrated operation after its acquisition. Its success is also closely related to the common strategies of the other two companies. As the largest agricultural cooperative in France, the InVivo Group comprises 220 cooperatives that bring together over 300,000 farmers, with an annual sales figure of over EUR6 billion. It also provides 40% of pesticides, fertilizers and other agricultural inputs in France, which is the largest grain producer in the European Union (EU). 
 

In Brazil, CCAB share a similar organizational structure as InVivo. Consisting of 22 cooperatives and two agricultural groups, CCAB controls 20% of shares in soybean production, 70% in cotton production and 14% in corn production in Brazil. It excels in registering generic pesticides, as well as importing and supplying pesticides to 55,000 farmers. Their similar backgrounds have deepened their mutual understanding of their business model and ongoing development, and their common strategy has established a solid foundation for future cooperation and development.
 

CCAB’s collaboration with InVivo has brought it financial support, increased its number of cooperatives, and increased its production of biological agents, helping it to become a competitive supplier of differentiated products in Brazil. Through the cooperation, InVivo gained targeted access to Brazil’s crop protection market and advanced its international strategy. According to the company’s management, the cooperation between the two sides has also created synergy in various areas, such as digital agriculture, supply chain and organic products. 
 

Another case is the acquisition of Mitsui and ISK of Ourofino. Founded in 1987, Ourofino began by selling veterinary drugs, and it now holds 12% of Brazil’s veterinary drug market, behind only Pfizer and MSD. In 2008, it entered the pesticide business. Although it is a newcomer to the agrochemical market, Ourofino has utilised its experience in the veterinary drugs market and continues to improve its products and develop new products, enabling it launch solutions that are suitable for Brazil’s farming models. Currently, the sales value of its pesticide has exceeded $200 million. 
 

Since the establishment of its pesticide business, Ourofino has become one of the most modern agrochemical enterprises in the world, and its research centers, laboratories and factories are equipped with the latest technologies. Advanced ideas, clear goal, leading capabilities and eye-catching market performance have attracted the investment of the two Japanese companies. 
 

Mitsui is a leader in trading and has invested in many businesses, with over 450 affiliated companies around the world. It also has leading knowledge and supply experience. ISK specializes in research and development of new molecules, focusing in the area of agrochemical. Before the acquisition, the three companies were aware that Brazil is the largest crop protection market in the world, which accounts for around 20% of the global market share. As population growth in developing countries is becoming a key factor in the growth of the agricultural input market, the Brazilian market will continue to benefit and grow. Therefore, the three companies, with their own advantages, decided to collaborate. 
 

Their cooperation model is based on Ourofino’s understanding of the Brazilian market and its strategic location, as well as on Mitsui’s global investment and operation expertise, and ISK’s development, research and production strengths. Their cooperation came at a right time, under the perfect conditions.
 

According to Marcos Fava Neves, a Brazilian specialist in strategic planning for agribusiness, the cooperation between the three companies will promote the rapid advancement of Ourofino and give it more resources for innovation. Through Ourofino, the two Japanese companies can obtain more information about the market and achieve greater success, through their joint efforts to advance the agribusiness sector in Brazil. 
 

“With this partnership, their tangible and intangible assets, such as market knowledge, clients, production process, governance and control, can be shared, allowing the companies to grow together in an environment through continuous learning, while benefiting from their portfolios, innovations and investment capacities. The industry also expects much from this collaboration and predicts that Ourofino will launch new products in the market soon. But the outcome of this cooperation remains to be seen,” he added.

 

Focus on Subdivided Domains and Absorbing New Business
 

According to the ranking list of top 20 Brazilian agrochemical companies released by AgroPages, multinational companies and several leading domestic enterprises hold the majority of the market share, highlighting a serious degree of market concentration. Small and medium-sized enterprises have to achieve differentiated business expansion and odder a high level of product mix to survive and thrive in this market. Some such cases are highlighted by recent acquisitions.
 

The Brazilian market has been occupied by multinational companies whose businesses cover various field crops and cash crops. A review of minor acquisitions in recent years shows that companies are now paying more attention to niche markets, such as the fruit and vegetable market. 
 

Early this year, American Vanguard Corporation (AMVAC), acquired two affiliated Brazilian limited liability companies, Agrovant and Defensive. With a strong position in the Brazilian fruit and vegetable market, the two companies have become leading suppliers of micronutrients and crop protection products, with yearly sales of around $20 million. Through the platforms and channels provided by Agrovant and Defensive, AMVAC has taken advantage of the business opportunities provided by the fruit and vegetable market to penetrate the Brazilian soybean market and increase its involvement in the cotton, corn and sugarcane markets, as well as the fast-growing micronutrients market. It is, therefore, expected to become an active player in the Brazilian agricultural market.
 

In May this year, the American company, Gowan Crop Protection Limited (Gowan), acquired Cross Link Consultoria e Comércio Ltda (Cross Link), a highly competitive Brazilian company in the fruit and vegetable market. As a family-owned company, Cross Link focuses primarily on the fruit and vegetable market, with annual revenues of around $17 million. It is also the exclusive distributor of Gowan products in Brazil for the past 25 years. After such a long-term partnership, Gowan chose to acquire its partner, which has become a key part of its global market access strategy. Gowan hopes that combining its acquired market access and advanced operations ideas and marketing methods will provide its customers and partners with added value and make it a leader in specialist crop markets. 
 

The cases mentioned above that focus on subdivided domains and differentiated competition strategies are good models for companies wishing to acquire Brazilian companies. 
 

Another case is Bayer CropScience’s acquisition of an Argentinean company in 2014. Bayer CropScience signed an agreement to acquire Biagro Group, with the aim of further expanding its global SeedGrowth business and offering an attractive quality portfolio based on seeds, coatings, equipment and services. 
 

Bayer CropScience plays a leading role in the global seed treatment industry, but it utilized Biagro’s advantages in subdivided domains to improve its product portfolio and offer new solutions to the market. In Argentina, Biagro is a well-respected company involved in the production and marketing of effective inoculants and biological seed treatment. Its product range is a valuable addition to Bayer CropScience’s product portfolio and will continue to expand the latter’s competencies in biological seed treatment.

 

Continuous Channel Expansion and Increasing Focus on the Central American Market
 

Regional and market expansion is also a major reason for the acquisition. For example, in 2018, Sumitomo Corporation acquired further shares in Agro Amazônia, making it a wholly-owned subsidiary. Sumitomo Corporation has invested in Agro Amazônia since 2015, gradually acquiring the whole company. 
 

Agro Amazônia was established in 1983. Operating in the state of Mato Grosso and surrounding regions, it is one of the largest distributors of agri-inputs in central and western Brazil. The acquisition was due to the Brazilian company’s channel resources, as well as Sumitomo Corporation’s in-depth understanding of the region’s market. The vast area of Mato Grosso (about 2.5 times the size of Japan), and its favorable climate have made it Brazil’s major producer of agricultural and livestock produce, including soybean, corn, beef and cotton. Mato Grosso is also a large agri-inputs market with ongoing growth potential.
 

The achievement of Sumitomo Corporation’s investment in Agro Amazônia is also significant. In 2015, it contributed to Agro Amazônia’s rapid growth, through providing financial, procurement and management support. Sales figures for the Brazilian company doubled in the 2018 fiscal year. The fertilizer market is an especially strong area of growth, with sales volume reaching approximately 200,000 tons in 2018, from 40,000 tons at the start of the Japanese company’s investment. Agro Amazônia has established its own brand of products and expanded and improved its product portfolio in areas other than fertilizers, enabling it to remain Mato Grosso’s top seller of agri-inputs.
 

In terms of acquisitions for regional expansion, potential acquirers have paid more attention to the Central American and Caribbean regions. In 2017, AMVAC announced that its wholly owned subsidiary, AMVAC Netherlands, acquired Grupo Agricenter, to reinforce its presence in the Latin American region. A Costa Rican distributor of agri-inputs, Grupo Agricenter sells multiple crop protection products in seven Central American and Caribbean countries, with an annual sale of over $50 million. For years, it has provided clients with business ideas and overall solutions and made them popular in many countries, accumulating many channel resources and acquiring strong customer loyalty. According to Eric Wintemute (Chairman & CEO of AMVAC), Grupo Agricenter’s portfolio, along with its commitment to customer service and in-depth experience in multiple markets, have complemented AMVAC’s own business approach. This acquisition will not only advance their international expansion, but it will also enhance their successful track record in providing solutions to farmers throughout the region.
 

Another case in 2018 involved UPL Corporation Limited, a wholly owned subsidiary of UPL Limited, which acquired 100% of shares in Industrias Bioquim Centroamericana Sociedad Anonima (IBC) and a cluster of group companies, collectively known as the Bioquim Group. IBC operates in the agricultural solutions industry while the Bioquim Group sells and markets agrochemicals and crop protection products in Costa Rica and several countries across the Caribbean and Central America. The acquisition is scheduled for completion in the first half of 2019. The combined products of UPL and Bioquim will ensure the availability of the best solutions to farmers and enhance UPL’s market share in the covered regions.

 

 

Based on all above cases, it can be concluded that acquirers must first define their business situation, product portfolio and operations ideas, as well as their strategic objectives and direction when choosing a target firm. They must then conduct in-depth research on target markets, while some companies obtain an understanding of their target markets through long-term cooperation with local companies. When selecting target firms, their scale, business features, business coverage, product portfolios, operations ideas, channel capabilities, service quality, strategic common ground, whether the acquisition can synergize in resources and business, and, most importantly, their ability to create ongoing benefits and their growth potential must be considered. 

 

Usually, target companies should have some or all of the following features: competitiveness in a subdivided domain or market, patented and differentiated products or product portfolios that are well received in the market, operational ideas and management know-how that are good for continual development, the ability to construct and expand channels, and a good relationship with clients and abundant customer resources. 

Appendix