Experts expect an increase in the number of M&A transactions in the agricultural sector

According to the managing partner of Kasatkin Consulting, Dmitry Kasatkin, quoted by RBC, one of the main factors in the growth of the sector will be the EXPORT of agricultural products and food under favorable exchange rate and price conditions on commodity markets. In recent years, exports of agricultural products have increased by an average of 5.4% per year. The main contribution to supplies will be from grains and oilseeds.

The efficiency of companies in the agricultural sector is under pressure due to rising costs. However, according to the study, the profitability of this market from 2018 to 2022 showed a steady increase from 7.8% to 14%. The highest pre-tax profit margin is in the fertilizer segment (52%), followed by agriculture at 13% and food manufacturing at 8%.

Maintaining a high level of profitability in the agro-industrial complex market, which exceeds the economy as a whole by 5 percentage points, will contribute to the trend toward industry consolidation. Analysts believe that the investment attractiveness of the industry is high and expect a further increase in transactions and the volume of investments.

Kasatkin explains the boom in the agricultural sector by saying that companies are being sold for various reasons, including decreased profitability and financial instability. Small and medium-sized businesses are especially interested in selling assets in the agricultural sector. At the same time, there is great interest from buyers in acquiring new assets in this industry.

DIRECTOR of the Center for Agricultural Policy at RANEPA Natalya Shagaida said that now there are not many investment options on the market, so businesses choose from what is available. “This could be observed when the law “On the turnover of agricultural land” was adopted in 2004 . Then a new object appeared - the earth. it was an undervalued asset. There was money from other sectors of the economy. Whoever bought land - from banks to sports associations. The fate of the purchases was different: somewhere an agricultural business was organized with varying degrees of success, somewhere the plots were repurposed for construction, somewhere they were resold, somewhere they were abandoned,” says the expert. 

According to Shagaida, the resale of existing modern assets now looks attractive. “Prices on foreign markets are falling: in September, the FAO food price index was 24% below its record value recorded in March 2022, the situation will normalize over time, profitability is not so great that starting a new business for the sake of it,” the expert noted .

Finam Financial Group analyst Anna Buylakova expects that large players will continue to develop through the acquisition of smaller companies. In her opinion, M&A in the agricultural sector plays an important role, as it allows producers to add new product categories to their portfolios, which diversifies the risks of individual product groups, as well as expand geographic coverage. In addition, vertical M&A increases control over the supply chain, which is positive for operational stability. Difficulties in the segment and the departure of foreign players may have a positive impact on the ability of larger companies to acquire interesting assets, the expert believes.

According to the results of the first half of the year, 28 transactions were concluded in the mergers and acquisitions market in the Russian agro-industrial complex, which is seven more than in the same period last year, Rosselkhozbank estimated. The total amount was RUB 54.2 billion, the average transaction size was RUB 1.9 billion. According to the managing director of the large business department of the Russian Agricultural Bank, Ilya Shumov, the sectors for significant consolidation remain crop production, MEAT processing, cultivation of open-ground vegetables, APPLE cultivation, MILK and table egg production , and the fishing industry.