The Canadian food and agribusiness sector has recently been experiencing healthy activity on the M&A front.
At the retail level, two very large deals were announced this summer. Facing increasing competition from United States retailers, leading Canadian grocery chains have been feeling the pressure to increase market share through acquisitions. In June, Sobeys announced its $7.4 billion offer for Canada Safeway, a predominantly western grocery chain. Shortly thereafter, Sobeys’ largest competitor, Loblaw, announced in July its $12.4 billion acquisition of Shoppers Drug Mart, the largest Canadian pharmacy chain with a growing food retail business.
At the processing level, several deals flowed from Glencore’s US$6.2 billion acquisition of Regina-based Viterra last year, including a sale of certain grain assets to Richardson International and the divestiture of certain of Viterra’s crop input assets to Agrium, which received regulatory approval on September 5. More recently, Viterra’s parent, Glencore Xstrata, announced on September 16 that it will sell Dakota Growers Pasta Co., one of North America largest dry pasta producers (acquired by Viterra in 2010), to Post Holdings for US$370 million cash.
At the primary agriculture level, as has been the case over a number of years, farms continue to grow in size and revenues through acquisition of land and businesses driven by a shrinking number of farmers, recent strong prices for grains and cereals, and economies of scale. This, in turn, is pushing-up farmland prices to all-time highs while still attracting institutional and investment buyers looking to acquire and collect farms as inflation-friendly assets.
From the farm to the fork, it’s evident that Canada’s food and agribusiness sector is increasingly becoming the subject of significant M&A deals. Many parts of the sector are ripe for consolidation and strategic acquisitions as companies fight to help have a role in feeding a growing and hungry global population.
The activity in Canada mirrors the global acquisition trend in the food and agribusiness sector, highlighted by the announcement of Henan Shineway Group’s US$7.4 billion acquisition of Smithfield Foods this May, and the closing this July of Berkshire Hathaway’s US$28.8 billion go-private acquisition of H. J. Heinz Company.
Berkshire isn’t the only one with sights on agribusiness. Legendary commodities investor Jim Rogers has said repeatedly since 2012 that agriculture is a great place for investors to be for the next two decades (see Wall Street Journal’s MarketBeat blog here). This August, Canadian investment firm Dundee Corp., under the leadership of Ned Goodman announced an 83% stake in Blue Goose Capital Corp., a Canadian beef producer (see the Bloomberg interview here).
There is an expectation that consolidation and strategic growth will continue along the agribusiness value chain, leading to increased M&A and financing activity in the sector. (Thanks to Gino Cozza and the team at Maison Placements Canada Inc. for much of the deal data contained in this article).
The author wishes to thank Nikolai Kovtouchenko, articling student, for his valuable assistance in preparing this legal update.