PSP Invests in Australia's Agribusiness?

Kirk Falconer of PE Hub reports, PSP Investments acquires majority of agribusiness BFB:

Public Sector Pension Investment Board (PSP Investments) has acquired a majority stake in BFB Pty Ltd, a Temora, Australia-based diversified farming business.

Terms weren’t disclosed.

The seller was U.S. resource private equity firm Proterra Investment Partners, which invested in 2008.

PSP, which did the deal through its natural resources group, said it will support BFB’s continued strategic development.

Established in 1985, BFB has a cropping portfolio comprising 44,167 hectares of arable land, as well as grain storage, fertilizer, agronomy, livestock, farming and logistics businesses.

PRESS RELEASE

BFB, one of Australia’s largest grain growers, announces new majority shareholder, PSP Investments

• BFB will maintain current management team, head office and business structure
• Several BFB Managers will continue to be investors in the company
• PSP Investments provides the stable, long-term investment horizon required for BFB to achieve its strategic objectives

TEMORA, AUSTRALIA, January 15, 2019 –B.F.B. Pty Limited (BFB) today announced the sale of Proterra Investment Partners’ majority stake to the Public Sector Pension Investment Board (PSP Investments), one of Canada’s largest pension investment managers and a major investor in the Australian agricultural sector.

The transaction delivers a strong outcome for its outgoing shareholders, as well as long-term, patient capital to support the continued strategic development of one of Australia’s most significant and successful agriculture companies.

The completion of the sale followed an extensive, competitive process and the clearance of all applicable regulatory requirements. PSP’s bid was considered the most compelling based on: its offered price; its low execution risk and creditworthiness to complete the transaction; and PSP’s Natural Resources Group’s strategic fit with BFB—and the financial resources at its disposal to support BFB’s expansion plans.

PSP’s Natural Resources Group is a global agriculture investor and is already invested in Australia’s agriculture sector through partnerships with local operators in the areas of animal proteins, row crops, fresh produce and tree nuts.

“Since partnering with Proterra in 2008, we have achieved outstanding growth underpinned by scale and efficiency,” said Terry Brabin, Founder and Managing Director, BFB. “Now, with PSP Investments, we look forward to succeeding in the next phase of our growth strategy to support our business, employees, customers, suppliers and the broader Australian community.”

“We are impressed with BFB’s team, performance and integrated business model, and we are excited to partner with them in their continued strategic development,” said Marc Drouin, Managing Director and Head of Natural Resources, PSP Investments. “This investment is emblematic of PSP’s strategy to partner with world-class and like-minded local operators who are also committed to best practices in the areas of employee health and safety, the environment, community engagement and corporate governance.”

“We have full confidence in BFB’s Management team and its employees to continue to grow this incredible farming business, for the benefit of BFB, the local community and Australia’s agricultural sector.”

“We are proud to have been a part of BFB’s transformation over the last 10 years into a top-tier and diverse agribusiness with deep operational expertise,” said Brent Bechtle, Founding Partner, Proterra Investment Partners. “We believe that PSP Investments is an ideal partner to support the next stage of BFB’s growth.”

“Over a period of 34 years, Terry and his team have created a best-in-class agribusiness and have become an important local employer,” he added.

Proterra was advised by PwC including M&A, Legal and Transaction Services.

About BFB

Established in 1985 and based in Temora, New South Wales, BFB has accumulated a blue-chip cropping portfolio comprising 44,167 hectares of arable land, in addition to significant grain storage, fertilizer, agronomy, livestock, farming and logistics businesses. BFB is a proud supporter of the local community. www.bfb.com.au

About PSP Investments

The Public Sector Pension Investment Board (PSP Investments) is one of Canada’s largest pension investment managers with CAD$158.9 billion of net assets as of September 30, 2018. It manages a diversified global portfolio composed of investments in public financial markets, private equity, real estate, infrastructure, natural resources and private debt. Established in 1999, PSP Investments manages net contributions to the pension funds of the federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police and the Reserve Force. Headquartered in Ottawa, PSP Investments has its principal business office in Montréal and offices in New York and London.

PSP Investments’ Natural Resources Group is committed to responsible, long-term investments in the agriculture and timber sectors globally. With CAD$4.8 billion of net AUM as of March 31, 2018, the Group currently has more than a dozen partnerships with best-in-class local operators in the agriculture sector across North America, Australasia and Latin America.

For more information, visit investpsp.com or follow us on Twitter and LinkedIn.

About Proterra Investment Partners

Proterra Investment Partners is an alternative investment manager focused on private equity investments in the natural resource sectors of agriculture, food, and metals and mining. Proterra has offices in Minneapolis, London, Sao Paolo, Mumbai, Singapore, Shanghai and Sydney. www.proterrapartners.com

Before I discuss this deal, a little background information. In September of last year, Andrew Marshall of Australia's farmonline reported, Proterra quitting ties to Temora's BFG agribusiness as new investors flood in:

Potential offshore bidders are almost falling over themselves in the scramble for a $300 million-plus NSW farming and farm service business seeking new corporate capital backers.

The intensifying US-China trade war, plus our comparatively cheap agricultural land are among key reasons overseas investor groups have ramped up buying interest in rural Australia this year.

Market observers say the 48,700-hectare BFB Limited grain growing, storage and pig production operation is ticking all the boxes for buyers seeking strategically diverse investments with scale and stable earnings capacity.

Spread from the Riverina to the mid Lachlan Valley, BFB’s business includes a 332,000-tonne grain storage site owned in partnership with global farm commodities giant, Cargill (Cargill’s 50 per cent stake is not for sale).

Temora-based BFB started out as a trucking company in the late 1980s, expanded into cropping and storage, and now includes the big Moore Park contract grower piggery, plus fuel and fertiliser distribution operations.

The private equity-funded company has amassed 28 properties, employs 81 full-time staff, plus 57 part-time workers, and typically produces about 110,000t of wheat, barley and canola annually.

A further 75,300t of grain storage is held on the various properties, including holdings in the Henty, Gundagai and West Wyalong districts.

First round offers from aspiring buyers are due late this month.

“The whole BFB operation is extraordinarily attractive to the sort of interest Australia is drawing from North American and European pension funds and private wealth offices,” said food and agribusiness advisory partner with PricewaterhouseCoopers, Greg Quinn.

“There’s a significant amount of money coming from Canada and the US looking for a home here at the moment.

“They’re investor groups who probably have put money here in the past six or 12 years, but they’ve been getting a lot busier in the past six months or so.

“They see Australian farmland and agricultural production’s value growth as a good long term investment option, and they’re not fazed by the drought.”

Mr Quinn said Australia’s strengthened trade ties and proximity to hungry Asia had lately, conveniently, coincided with rising apprehension about US trade with China and a cooling appetite for agricultural connectivity between the two economic giants.

Australian farms and agribusinesses were well positioned to take advantage of the US business uncertainty, or US investors turning their attention “down under” rather than buying at home.

Elders real estate general manager, Tom Russo, noted Australian farmland was still considered good value compared with much of the northern hemisphere.

Strong farm commodity prices, coupled with increased demand for land had driven double digit property valuation gains in many areas, adding to farming’s upbeat capital return story.

Solid capital gains

The Australian Farmland Index recently reported capital return for the corporate farm holdings it monitored totalled 13.25 per cent – including 6.8pc capital appreciation – for the three years to the March quarter in 2018.

Demand for quality broadacre and permanent horticultural properties growing avocados, citrus, nuts and table grapes was particularly strong, pushing land value returns up from 8.4pc in March 2017 to 11.8pc this year.

Coincidentally Elders has just begun marketing a 10,000ha horticultural development property, Monash Station near Berri in South Australia’s Riverland – a former grazing property now fully approved for irrigated almond, table grape, avocado and citrus crops.

Although yet to be planted and developed, interest is already emerging from the likes of North American pension fund managers, plus local funds and farm management groups with experience in almonds and irrigated cropping.

Mr Russo, said the farm commodity price surge of the past five years had also beefed up the bank accounts of family-owned enterprises across the farm sector, some of which were now making strategic, and often large, investment moves to grow and diversify their business.

Based on comparable market activity for similar undeveloped irrigation land, and the unprecedented growth in demand for horticultural produce and appropriate land, the “dig ready” Monash Station was likely to fetch more than $25m.

It promises to yield more than 60,000t of crops worth the current equivalent of $130m annually when in full production in the coming decade.
Local buyer interest, too

The diversified BFB grain-based business is also being pitched to Australian investors, notably superannuation funds, which have begun showing greater interest in ag investments in the wake of the tide of overseas pension fund money washing in during the past few years.

A big attraction are asset-rich BFB’s numerous cashflow streams and its footprint in several climate zones.

Its $327m asset base, much of it accumulated since 2010 with funding from Proterra Investment Partners, includes property, plant and equipment worth about $267m.

BFB is largely owned the private equity investment manager, Proterra, which in turn is 71pc owned by Cargill’s agricultural asset investment arm, Black River Asset Management.

Black River has other Australian farming interests ranging from Queensland sugar and beef properties to grain growing in NSW and southern Queensland and Tasmanian horticulture, plus assets in about 12 other countries.

Depending on the successful buyer, BFB's current management under company founder, Terry Brabin, may continue to have a stake in the new ownership model.

BFB still has an active expansion agenda and hopes the new backer will help fund its plans when Proterra moves on.

Knowing PSP well, I can tell you they absolutely wanted Terry Brabin, BFB's founder and Managing Director, to stay on and have a sizable stake in the deal. This deal would never have been done without PSP demanding he stays on to manage the company and own part of it (skin in the game).

As far as Australian agriculture, it's booming and it's part of a secular theme, the rise of China's middle class increasingly looking to adopt a Western diet. Global pensions and sovereign wealth funds all want a piece of this agricultural pie.

As far as the actual bidding process, typically the way this works is pensions and other investors that invested in a private equity fund - in this case Proterra Investment Partners -- will bid on a portfolio company, building, land, etc. once the fund's life ends and the PE firm looks to unwind assets and raise money for its next fund.

It was a competitive bidding process and PSP had to clear all Australian regulatory hurdles to purchase its stake, which it obviously did.

It should be noted, however, that agriculture, timberland, collectively called natural resources, do carry risks and big investors have suffered mixed performances in the past. In 2017, Bloomberg reported that Harvard's endowment was taking a $1.1 billion write-down on the value of its natural resources investments in fiscal 2016, contributing significantly to its poor performance that year.

In May 2018, Bloomberg reported that Harvard's Endowment then headed by Jane Mendillo blew $1 billion in a bet on tomatoes, sugar, and eucalyptus in Brazil that went sour.

In May 2017, I discussed why CPPIB was retreating from farmland, mostly in North America.

Australia is a different market and as discussed in the second article I posted above, the Australian Farmland Index recently reported capital return for the corporate farm holdings it monitored totalled 13.25 per cent – including 6.8pc capital appreciation – for the three years to the March quarter in 2018.

It's obviously a hot and growing market. Will this double-digit growth continue indefinitely? Of course not, Australian farmland will experience booms and busts just like all other asset classes but this is why you need to partner up with the right management team that knows how to deliver great value even in tough times. This is why PSP needs Terry Brabin and his team as much as the latter need PSP as a long-term patient partner.

Anyway, PSP's Natural Resources Group headed up by Marc Drouin is doing a great job finding these deals in Australia and elsewhere. It's not an easy portfolio to ramp up quickly but as they find more deals, I'm sure it will grow from the current 3% to close to 6% over the next few years.

Below, Growth Farms is a leading Australian agricultural investment manager, having invested over A$400m in Australian farmland since 2008 and has achieved a portfolio return of 10.1% after fees to 30 June 16. Further information is available here.

I included this clip because I couldn't find something comparable for BFB featuring Terry Brabin. It's very informative and explains why institutional investors are attracted to Australian farmland.