THE reported "tidal wave" of demand for food producing assets in Australia has recently resulted in Tipperary Group and S. Kidman and Company being added to the growing list of large agribusinesses potentially changing ownership, following the likes of Grant Burge, the Costa Group, Moxey Farms, Tandou Pastoral, Primo Smallgoods and Inghams Group.
Glencore is also pondering the sale of some, or all, of its rural assets to reduce debt and shore up its share price.
As the mining boom turns to bust, increasingly we are seeing prospective investors switch their attention to agribusiness transactions.
Businesses across food production are capitalising on the current level of investment interest in the sector, investigating options such as an outright sale, release of capital through sale and lease back arrangements; or bringing on an equity partner.
High on the media radar is the action in northern Australian beef properties, with Fairfax Media reporting in September more than $120 million had been spent by Chinese investors on Australian agribusiness assets in the first three months of 2015-16 alone.
Vendor motivation is often triggered by an unsolicited offer; a theoretical valuation; or financial pressures, and not necessarily as part of the company's strategic business plan.
This poses a question about whether companies are adequately prepared for the challenge of preparing their own business to meet the needs of a potential buyer or investor?
When large scale agricultural assets transact, current market rates are reasonably obtainable if the underlying value is only land and improvements based.
However, any vertically integrated business that is value adding a product will be more difficult to assess on this basis.
The ability to present the business with the expected commercial metrics capable of driving a valuation model - for example, return on investment or earnings-based measures, together with any intellectual property or goodwill - has the ability to improve the sale price.
This was highlighted in the Inghams Group divestment transaction late last year.
Regardless of the industry or complexity of the business, due diligence information requirements are much the same.
Ensuring the company has robust financial information; a realistic strategic business plan; executed current key contracts; and a defined and effective management structure, are just a few of the key diligence areas focussed on by potential purchasers.
Incomplete or inconsistent information can increase the perception of risk and prolong the due diligence process, in turn destroying potential value through reducing momentum and competitive tension.
An interesting sale process to follow will be the most recent attempt to market the Kia-Ora and Clyde properties in southern Queensland owned by Eastern Australia Agriculture, which presently looks to be a pure land and water play.
In 2011, McGrathNicol marketed neighbouring property Cubbie Station.
The successful sale of Cubbie Station demonstrated the value of conducting an extensive vendor due diligence process, assisting particularly overseas parties to understand the complexity and unique attributes of Cubbie Station, at a time of increased political sensitivity to foreign ownership of agricultural assets and regulatory reform of water rights in Australia.
Early independent identification of potential issues and information gaps provides the opportunity to address, rather than being caught off guard once the transaction process has commenced.
Regardless of size, it is critical for any agribusiness entertaining the idea of divesting all or part of its business (be it a large primary producer or a downstream processor), to properly invest in adequate preparation as present timing could provide an ideal opportunity to cash out of some, or all, of its business with strong investor interest in the sector.
Jamie Harris and Anne-Maree Keane are partners at transaction, restructure and advisory consultancy firm McGrathNicol.
