CASE
Sale of business
Founder of Soul Partners has organized a number of transactions for the Holding's assets sale
Agroholding had a land bank of around 90,000 hectares and assets that were spread across the country. But on practice it turned out to be difficult to manage businesses located in different regions as each region has its own specific climate conditions and as a result – different agricultural technologies have to be used. Thus, management process needed an improvement. As a result – agricultural business has accumulated considerable loan portfolio, which had to be repaid or restructured.
Igor Verhogliad
Managing partner
The transaction was successful due to applying "dual-track" divestment strategy, which allowed the seller to choose between selling 100% stake in business as a whole, or as series of curve-outs.
There were a few options for the Company on the table. First one was an IPO, proceeds from which were to be used for partial debts repayment. Second one was to sell 100% stake in the agriholding and to reinvest obtained money in other businesses.
The idea to sell the business to large agricultural holding did not work. The proposed price hasn't meet expectations. For a large agricultural holding, such an agreement, apart from expanding the land bank, would not bring synergies. Geographical diversification of business was to be exploited. If the agribusiness has clusters in different regions, there is a need to seek a buyer among agricultural companies in such locations. Those buyers gain synergy in business by the expansion of existing farms with new land. After negotiations with local players in five regions, preliminary purchase offers were received.
The idea to sell the business to large agricultural holding did not work. The proposed price hasn't meet expectations. For a large agricultural holding, such an agreement, apart from expanding the land bank, would not bring synergies. Geographical diversification of business was to be exploited. If the agribusiness has clusters in different regions, there is a need to seek a buyer among agricultural companies in such locations. Those buyers gain synergy in business by the expansion of existing farms with new land. After negotiations with local players in five regions, preliminary purchase offers were received.
Agribusiness for sale
- 1To agree on interests of all partiesAgribusiness is usually a set of legal entities, each of which manages land plots with a number of lease agreements. Such agreements could be signed by one legal entity in several different regions.
Before the sale, the legal entity can be divided into parts, but this does not remove all risks. Another option is to create a new legal entity for each region and re-sign agreements with landowners, but it takes time and incurs additional costs. In the process, part of the land bank could be lost as some of the landlords will refuse to re-sign contracts. - 2To determine the market price of assetsValuation of an agricultural company is another issue for discussion between the parties. More precisely, its valuation of the land lease rights that require efforts. Agricultural holding sells lease rights, not land ownership. The land remains the property of the landlord. This component of the value is one of the main subjects for discussion by the parties.
- 3To structure the agreementThe legal structuring of a sale agreement contains several hidden factors. In complex structures, there are always cross-guarantees, when one company is entrusted for another. In the case of the sale of the enterprise, it is necessary to agree with the bank on the withdrawal of the cross-guarantee. Such negotiations are always complex and time-consuming.
- 4To determine the timing of the agreementIf the farm would be sold before sowing or after harvest, the working capital is minimal. It speeds up the negotiation process as there are fewer issues that need to be agreed upon. If the sale takes place after sowing or before harvest, there are always questions of its evaluation. Often the parties of the deal agree to postpone the agreement until the harvest.
Results
As a result, four separate transactions were organised for the sale of agricultural holdings, which had land lease rights from 5,000 ha to 20,000 ha each. The seller received a 20% higher sale price compared to offers to purchase the agricultural holding as a whole.
As a result, four separate transactions were organised for the sale of agricultural holdings, which had land lease rights from 5,000 ha to 20,000 ha each. The seller received a 20% higher sale price compared to offers to purchase the agricultural holding as a whole.
The deal that rescued business and
retained shareholders' control
retained shareholders' control
Such an experience is feasible
not for every business
not for every business
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