Since being dramatically rerated as an asset class, the Australian food and agribusiness sector has attracted growing interest on the back of sales, and potential sales, to the Chinese and broader Asian markets.
Investor activity in the sector has continued to gain momentum over the past 24 to 48 months, which in turn has driven a significant level of related merger and acquisition (M&A) activity.
An industry which has been of particular interest, to both foreign and domestic investors (in both a private and corporate capacity), is the Australian Beef Industry. The heightened focus on Australian beef assets has in part been due to record high cattle prices, which peaked in August 2016, driven by a number of factors including:
- Prolonged drought in Australia’s northern and eastern states, which lead to a significant reduction of Australia’s national cattle herd;
- Softening of the Australian dollar over the preceding period;
- Opening of additional/alternative markets for Australian beef (in both frozen and live form); and
- The execution of Free Trade Agreements with three of Australia’s largest trading partners (i.e. Japan, South Korea and China), which are set to reduce import tariffs on a wide range of soft commodities, including Australian beef.
Increased interest in Australian beef assets have given rise to a number of large transactions being brought to market, the most recent of which include:
- The pending sale of Consolidated Pastoral Company, currently owned by Terra Firma (a UK-based Private Equity firm). If completed the deal will be Australia’s single largest beef transaction -expected to transact for approximately $1 billion.
- Yougawalla Pastoral Company’s sale of three cattle properties, located in Western Australia’s Kimberley Region, to Chinese investor Hui Wing Mau – estimated at +$70 million.
- The sale of a 51% stake of Bindaree Beef Group, an Australian integrated beef business, to Archstone Investment Co (a company linked to Hui Wing Mau) – estimated at $100 to $150 million.
- Camm Agricultural Group’s sale of an aggregation of three Northern Queensland cattle properties to Rural Funds Group (an Australian agricultural funds manager) – $53 million.
- The sale of S Kidman and Co (Australia’s largest private landholder by area) to a partnership between Hancock Prospecting (owned by Australian mining magnate Gina Rinehart) and Shanghai CRED (a Chinese backed real estate investment group) – $386 million.This transaction followed a failed bid by China’s Dakang Australia Holdings, which was rejected by the Federal Treasurer on the grounds of being “contrary to the national interest”.
- The sale of an 80% stake of North Australian Pastoral Company to QIC (the Queensland Government owned investment company) – estimated at +$300 million.
- The acquisition of several Northern New South Wales based properties to Paraway Pastoral Company (the Macquarie Group’s agricultural asset management business) – estimated at +$100 million.
- Consolidated Pastoral Company’s sale and leaseback of Carlton Hill Station, located in the Ord River district of Western Australia, to Chinese based investment group Shanghai Zhongfu – $100 million.
- SAWA Pastoral Company’s sale of four properties, located across the North West of Western Australia, to a syndicate of international investors – approximately $100 million.
Future transactions are expected to continue to draw interest from foreign investors, however are likely to be closely scrutinised by the Foreign Investment Review Board (FIRB). As an indication of this increased scrutiny, the Federal Treasurer recently announced additional regulatory changes regarding the sale of Australian agricultural land to foreign investors. The changes include the requirement for foreign investors to satisfy that land being acquired is “marketed widely”, as part of an open and transparent sale process.
Despite the softening of cattle prices from their peak in 2016 and the increased scrutiny by FIRB, continued interest in the Australian Beef industry is expected to drive M&A activity, as domestic and foreign investors take the asset class more seriously.
Liam Hawkswell – Senior Client Manager, Corporate Finance