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By Gareth Armstrong
Diversified chemicals group Omnia Holdings recently announced its US$100 million acquisition of Oro Agri, aligning with its stated strategy of building a sophisticated, global agriculture biologicals (AgriBio) business to meet the growing demand for environmentally friendly AgriBio products in the agricultural sector and recognising the opportunity to grow its global distribution footprint. Oro Agri is an international company involved in the research and development (R&D), production, distribution and sales of a unique range of patented AgriBio products.
Increasing productivity in the agriculture sector is critical to meet global food requirements. Declining available arable land combined with the efficacy of traditional chemicals which are fast reaching their maximum performance levels due to increasing resistance from plants, insects and other diseases do not bode well for sustainable productivity in the long term. An elevated level of health awareness amongst the public has increased scepticism towards traditional chemical products further driving the demand for AgriBio products. All of the above have essentially culminated in the second “Green Revolution”, catalysing a radical shift in agriculture production necessary to feed and sustain a growing global population.
AgriBio products are eco-friendly alternatives for crop protection, enhancement and nutrition and comprise of biopesticides, biostimulants and biofertilizers. The demand for AgriBio products is further underpinned by the increasing emphasis on nutrient and water use efficiency (agriculture uses 70% of water worldwide) coupled with the rising demand for products that are environmentally friendly, enhance crop performance and improve yields. Furthermore, the use of AgriBio products in combination with traditional chemicals can enhance performance and reduce application rates. The use of AgriBio products is considered a key component of an integrated crop management solution. The global market for biostimulants is expected to reach US$3 billion by 2021. Agriculture and agribusiness collectively in sub-Saharan Africa is expected to be a US$1 trillion industry by 2030. Increased regulations over the responsible use of traditional chemicals that are potentially harmful to the environment has further driven investment into R&D in the AgriBio industry.
Oro Agri operates in four major regions globally, namely Brazil, Europe, South Africa and the USA, with Asia Pacific an important fifth major region that is at an early stage of development. Aside from Europe, Oro Agri owns and operates in-house production and R&D facilities in the three other regions in which it has a presence. Oro Agri’s key product ranges include biostimulants, adjuvants, crop protection products, liquid foliar fertilizers and soil conditioners for large scale agriculture applications as well as smaller pasture, lawn and garden applications. These products address the two main agronomic issues farmers face – more efficient uptake of water and nutrients from the soil resulting in improved water utilisation, and an organic pesticide which can be used alone or in conjunction with other traditional or biological methods. Oro Agri has a well-developed global sales and distribution network in more than eighty countries with an established network of distributors, agents and directly employed staff to market and sell its products.
Omnia, through its agriculture division, is well established in South Africa and the rest of the African continent, providing the sector with mostly water-soluble and foliar products, trace elements and organic soil conditioners through its distribution and logistics network. Omnia has been a leading player in conducting extensive R&D in the agriculture sector and in developing sought after products, solutions and services for customers.
The transaction provides Omnia with accelerated access to the high growth AgriBio market with the potential to leverage their distribution and marketing network. Omnia now has the opportunity to sell its complimentary existing specialty products and services through Oro Agri’s marketing channels which would be costly to duplicate. In addition, it increases Omnia’s International agriculture footprint in areas such as North America, Europe, Asia and Brazil and enables expansion and growth into other international markets, thus diversifying climate and exchange rate risk. Omnia will eliminate the time, cost and risk associated with establishing a similar global network as well as the extensive R&D required to formulate comparable AgriBio products to the same standard as Oro Agri.
The transaction remains subject to a limited number of conditions which are expected to be fulfilled during the second quarter of 2018. Following implementation Ori Agri will become a subsidiary of Omnia and report under its agricultural business. Rand Merchant Bank acted as co financial adviser to Omnia on the transaction.
- Gareth Armstrong is a Corporate Finance executive at Rand Merchant Bank.