February 16, 2017

Australian agribusiness Ruralco is seeking to raise $65 million – $30 million from institutional investors, and another $35 million through a one-for-six share entitlement offer from shareholders, to fund the company’s expansion into new water and rural merchandising businesses.

The offer price per new share under the entitlement offer and institutional placement is set at $2.66, reflecting an 11.5 percent discount to the share’s traded price of $3.00 on February 14.

Three of the company’s four key shareholders have agreed to take up their full entitlements, reports The Australian.

Ruralco is a leading Australian agribusiness specializing in providing products and services in fertilizer, seeds, wool, livestock, real estate, risk management, water, grain, finance, and insurance. The group encompasses more than forty specialist businesses that operate under their own specific service model and value proposition with 500 outlets across its network.

The capital raised will be used by the company to fund the acquisition of three rural merchandising businesses – TP Jones & Co., Great Northern Rural Services, and Sid Newham Rural Supplies in New South Wales, Tasmania, and Western Australia; and five water services business – Irrigation Tasmania, Mildura Irrigation Center, Riverland Irrigation, River Rain, and Hunter Irrigation, located in Victoria, New South Wales, Tasmania, and South Australia, for a total consideration of $60.8 million.

Ruralco notes that agricultural production accounts for 62 percent of all water usage in Australia, and of this volume, irrigation accounts for 90 percent. Additionally, the sector is underpinned by government and private investment, and is increasingly volatile – evident in the fact that between 2014 and 2016, the value of water entitlements held for consumptive use in the southern Murray Darling Basin doubled to $11.5 billion, according to the company.

The company also notes a high level of compatibility between water investments and its core business, stating that investments by farmers in irrigation will strengthen production and increase agricultural output – something that will benefit Ruralco’s Rural Services and Agency businesses.

“Investment in water businesses has the potential to reduce the cyclical impact of rainfall and drought events on earnings, allows Ruralco to capture a greater share of wallet in a higher margin category, and represents a significant competitive advantage between Ruralco and its peers,” stated the company in a recent release.

Furthermore, after examining its Rural Services footprint, Ruralco identified geographical gaps that the above mentioned rural merchandising acquisitions could fill, aligning with the company’s growth initiatives.

“We are pleased to have secured a portfolio of high quality businesses aligned with our Future Farming Strategy on attractive acquisition metrics,” said Travis Dillon, chief executive officer and managing director, Ruralco. “Ruralco is well positioned to grow the business, with the focus remaining on balancing the execution of strategy with improvements in operating leverage to ensure increased shareholder returns.”

“The Ruralco management team have ensured the strategic fit of the acquisitions to the core business,” added Rick Lee, Ruralco chairman.  “I am confident they will deliver value into the future.”

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com