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Agriculture in the Spotlight

The agriculture sector was among the hardest hit following the immediate lockdown and market shutdowns caused by the COVID-19 outbreak. The number of M&A deals in the organic and sustainable agriculture market steadily rose year over year until 2020 when deal counts fell to 116 compared to 156 transactions in 2019. Deal-making has rebounded in the past year and a half with strong tailwinds from economic recovery and geo-political events. Still, the industry is going through a major transition with many challenges along with new growth opportunities.

Sustainability is a major force for growth. Lower energy, water conservation, and environmental waste management are crucial for sustainable agriculture as they are for general manufacturing. Sustainability also provides enormous benefits for profitability by lowering costs. Investment in the agriculture sector is also influenced by consumer preferences for organic food and health and wellness activities in general. For these reasons, there is a significant and ongoing shift from synthetic chemicals to bio-based agricultural products and solutions. Bio-based products and enabling technologies such as fermentation are gradually displacing synthetic chemistries in crop protection, adjuvants, seat coatings, fertilizer enhancers, and soil enhancement (for example, micronutrients).

This transition is driving significant investment in start-up companies with promising sustainable technologies along with acquisition search programs among established agricultural chemical companies. Strategic acquisitions of companies with promising sustainable technologies and solutions for crop protection and seat coatings can accelerate growth and strengthen competitive positioning of the acquiring company. Adding bio-based products and solutions to a company’s portfolio, for example, demonstrates a supplier’s public commitment to sustainable agriculture. We believe specialty chemical companies will continue to pursue opportunities for accelerating the transition to sustainable, cost-effective, and innovative manufacturing processes and products.

From a geopolitical standpoint, Russia’s invasion of Ukraine has destabilized markets for many agricultural products. For one thing, the prices of grains have been volatile because the invasion has limited supply of some fertilizers. Russia typically exports nearly 20% of the world’s nitrogen fertilizers and, combined with its sanctioned neighbor Belarus, 40% of the world’s exported potassium. Much of that supply is now cut off due to Western sanctions and Russia’s self-imposed fertilizer export restrictions.

A combination of geopolitical, energy, inflation, and supply chain concerns have also affected valuations, requiring longer negotiations and due diligence as well as creative structures for M&A deals. Nonetheless, the recovery continues this year and 2023 should be another strong year for deal-making in the agriculture sector across the globe.

About CDI

CDI Global works with Food & Agriculture businesses throughout the world to achieve the very best M&A outcomes. CDI Global has extensive knowledge of the dynamic and innovative changes occurring in the global Food & Agriculture industry. With us as your partner, you're equipped with the agility to navigate market changes, enter creative and powerful new directions, putting you firmly on the path to positive results. Our appetite for the Food & Agriculture industry provides us with the knowledge and insights to advise on complex M&A deals, fundraisings and provide comprehensive corporate finance services. Our professionals understand competitive pressures and globalization trends. If you are considering buying or selling in the sector, or would simply like to discuss your options, sign up now for a free, no-obligation consultation with our Food & Agriculture experts by phone.

By: Jeff Schmidt

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