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Adelaide-headquartered rural services group Elders (ASX: ELD) plans to dilute its shareholdings by more than 30 per cent to acquire Delta Agribusiness for almost half a billion dollars - a deal that would fill in key geographical gaps at retail in addition to numerous products and a cornerstone farm advisory business.
Founded in 2006, Delta Agribusiness has a network of 68 locations and 40 independent wholesaler customers, and its combined offerings - from fertilisers to seeds to its 4 Season animal health brand - contribute to annual earnings of approximately $53 million.
Documents filed with the corporate regulator show Delta's largest shareholder is Melbourne Securities Corporation, owned by MSC Group, followed by Odyssey Private Equity Fund 8 which was founded by former CHAMP Ventures directors Gareth Banks, Jonathan Kelly and Paul Readdy with Quadrant Private Equity co-founder George Penklis.
Penklis and Banks both sit on the board of Delta, which also has 106 products that are registered with the Australian Pesticides and Veterinary Medicines Authority (APVMA) and around 45,000 tonnes of fertiliser storage on the east coast.
The $475 million deal includes $190 million new shares for Delta shareholders, who will thus own 10.5 per cent of Elders if the acquisition is approved by the competition regulator and other conditions, such as financing, are met. Elders is raising $246 million at $7.85 per share, representing a 9.2 per cent discount to the last closing of trade, and has also secured a new $110 million loan facility.
Delta is based in Australia's cherry capital of Young, NSW, and today's announcement comes just two weeks out from the town's National Cherry Festival. The deal could hardly be sweeter for the company's investors given documents registered with the corporate watchdog show $71.5 million was paid for its shares.
"There is strong cultural alignment between Elders and Delta, as two trusted agribusinesses seeking to create value for our customers," says Delta managing director and co-founder Gerard Hines.
"Our management team will remain unchanged and we are excited to be able to continue to provide our customers with innovative and value adding business solutions with the added support of Elders."
Elders expects EBITDA synergies of $12 million before one-off implementation costs, to be realised over the course of three years. The group highlights the incorporation of Delta will fill retail gaps in NSW, north-west Victoria, South Australia and Western Australia, whilst also enhancing the group's technical expertise and offering in ag tech and precision agriculture.
"The acquisition of Delta continues Elders’ successful track record of growing our business through disciplined acquisitions," says Elders managing director and CEO Mark Allison.
"Delta provides us with greater exposure to key local retail markets as well as a leading agronomy and farm advisory team to complement and extend our products and services range for rural and regional Australia.
"Elders has a proven track record of synergy generation through backward integration and expects that the Acquisition will create meaningful value for Elders’ shareholders. The culture and strengths of Delta will be preserved through our light touch integration strategy, and we look forward to welcoming the Delta management and employees to Elders."
If the acquisition goes ahead, it is due for completion in the first half of the 2025 calendar year.
The news coincides with the release of Elders' FY24 results for the 12 months to 30 September, with revenue down 6 per cent at $3.13 billion and lower earnings per share. Margins increased for Elders' agency services and there was an uplift in the animal health category, offset by weaker fertiliser and crop protection sales which were predominantly impacted by lower prices.
Margins recovered for Elders' feed and processing services, and livestock funding offerings lifted the financial services division, while real estate services margins grew off the bank of recent acquisitions, most notably the business previously known as Knight Frank in Tasmania, and improved broadacre demand following the recovery in the livestock market.
The group is optimistic about the 2024-25 summer crop with favourable moisture profiles in many dry land areas, and average seasonal conditions across irrigated cropping regions.
Elders also expects price stability in livestock markets providing a tailwind against the prior period. Livestock volumes might be impacted in FY25 from dry conditions in South Australia and Victoria in FY24.
"Elders’ FY24 performance has reaffirmed for us the importance of commitment to a tightly managed cost base and a geographically diverse multi-product portfolio, to deliver strong earnings and value for shareholders through the cycles," says CEO Mark Allison.
"Our resilient financial result in FY24 reflects our commitment to achieving long-term consistent and methodical growth, driven by financial discipline and decision making that is true to our core as a pureplay agribusiness."
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