• Published in March 20, 2024 20:17 inAgribusiness

Mergers and Acquisitions in the Seed Sector: Opportunities and Strategies for Global Growth and in Brazil

 

Introduction

At the heart of global and Brazilian agriculture, the seed sector represents a fundamental pillar for sustainable development and food security. This segment, ranging from seeds for flowers, fruits and vegetables to major agricultural commodities like soybeans, sorghum, corn, and wheat, is the foundation that not only feeds populations but entire economies. The quality and innovation of seeds determine agricultural productivity, directly influencing the efficiency and sustainability of the global food chain.

In Brazil, an agribusiness giant, the seed sector plays a particularly critical role. With a diverse agriculture that ranges from vast soybean fields in the Cerrado to varied fruit and vegetable productions in the South and Southeast, the choice and development of suitable seeds are essential for maintaining the competitiveness and sustainability of Brazilian agribusiness on the global stage. Seeds are not just the beginning of the agricultural production cycle; they are the key to addressing challenges such as climate change, pests, and the need to increase food production in a sustainable manner.

In this context, the process of Mergers and Acquisitions (M&A) in the seed sector emerges as a vital strategy for growth and innovation. M&A allows companies to expand their research and development capabilities, access new markets, increase their productive capacity, and, crucially, accelerate the incorporation of technological innovations in the development of more resilient and productive seeds. In the global market, where competition intensifies and the demand for food grows, mergers, acquisitions, and strategic partnerships are essential tools for companies that wish to remain at the forefront of agricultural technology and sustainability.

The relevance of M&A in the seed sector is not limited to commercial expansion or the strengthening of supply chains. It extends to the potential to transform agricultural practices through innovation, contributing to the production of more sustainable foods and combating world hunger. Therefore, understanding the M&A process in this sector is not just about comprehending an aspect of agricultural economics; it is about envisioning the future of food and sustainable agriculture.

With the support of specialists and M&A boutiques dedicated to agribusiness, such as Silveira Capital, companies in the seed sector have a unique opportunity to explore these transformations, ensuring not only business growth but also contributing to a greener and more sustainable future. This article aims to explore the opportunities and strategies for global and Brazilian growth through M&A in the seed sector, illuminating the path to more productive and sustainable agriculture.

 

Understanding the M&A Process

The concept of Mergers and Acquisitions (M&A) refers to a business strategy that combines or acquires companies and assets, aiming for growth, market expansion, access to new technologies, or operational optimization. In the seed sector, this process takes on a crucial strategic dimension, allowing companies to expand their product portfolio, strengthen their research and development (R&D), and respond more effectively to the demands of an ever-evolving agricultural market.

Phases of the M&A Process Applied to the Seed Sector

Strategic Planning

Identification of Objectives: Companies clearly define the objectives of M&A, whether to expand their product line, access new seed technologies, or enter new markets. In the seed sector, this may include the acquisition of companies with complementary portfolios, acquisition of germplasm, or innovative technologies in agricultural biotechnology. In this objective identification, companies can also determine whether it is more interesting to sell their operations or assets in whole or in part.

Internal Evaluation: An analysis of the company's own capabilities, resources, and possible strategic gaps. This includes the evaluation of the seed portfolio, research and development capabilities, and market position.

Research and Selection

Identification of Potential Targets: With the assistance of M&A boutiques specialized in agribusiness, such as Silveira Capital, companies identify potential candidates for merger or acquisition, considering criteria such as technological, geographical, and market compatibility.

Companies wishing to sell identify potential buyers at this stage.

Preliminary Analysis: Initial evaluation of selected companies to determine the feasibility and strategic potential of a merger or acquisition/purchase.

Approaches

At this stage, usually with the help of an M&A boutique such as Silveira Capital, contacts are made with potential buyers or targets for a merger or acquisition.

Screening: after the initial approaches and analyses, a screening is done to advance negotiations only with the most promising buyers or sellers.

Evaluation

Due Diligence: A detailed analysis is conducted to assess the financial health, legal risks, regulatory compliance, and potential synergies of the target company. In the seed sector, this includes the evaluation of intellectual property associated with seed varieties, sustainability certifications, and compliance with local and global seed legislation.

At this stage, the buying company usually conducts its own due diligence on the company being sold.

Company Valuation: A combination of methods is used to determine the fair value of the target company, considering its assets, growth potential, and expected synergies.

The seed company to be sold typically conducts a valuation of its business with the assistance of its advisors, such as an M&A boutique specialized in agribusiness like Silveira Capital. This valuation will be reviewed by potential buyers as the transaction progresses. It is performed using appropriate valuation methodologies, such as discounted cash flow (DCF) and asset value, and for pricing, market multiples are used to arrive at an accurate valuation that reflects the true potential of the seed company.

Negotiation

Agreement Terms: The parties negotiate the terms of the agreement, including price, payment conditions, and post-acquisition arrangements. In the context of seeds, issues such as intellectual property rights to the seeds and compliance and sustainability guarantees can be central to the discussions.

Obtaining approvals: some transactions are subject to regulatory bodies and therefore must be pre-approved by them.

Transaction Structuring: Definition of how the transaction will be structured.

Legal Agreements and Finalization: The formalization of the agreement through legal contracts and the fulfillment of all pre-established conditions for closing the transaction.

Closing and Implementation

Transaction Conclusion: After negotiation, the contracts are signed, and the transaction is formalized. This may include the transfer of assets, integration of systems and processes, and alignment of operations.

Integration: The integration phase is critical to ensure that the identified synergies are realized. This involves unifying corporate cultures, seed production processes, and R&D systems, as well as managing any operational or regulatory challenges.

The integration stage is one of the most critical in an M&A process and is statistically the most responsible for significant divergences between what was planned and what was achieved in an acquisition. It is essential to have M&A boutiques specialized in the seed sector for planning integration, sizing synergies, and executing the implementation of what was planned.

Post-Acquisition

Success Evaluation: After integration, it is important to assess the success of the acquisition in terms of achieving the initially defined strategic objectives and the impact on growth and innovation in the seed sector.

Through this process, seed companies can strengthen their market position, promote innovation, and contribute to sustainability and food security. The role of specialized consultancies, such as Silveira Capital, is fundamental in this process, providing expertise and guidance to successfully navigate the complexities of M&A in agribusiness.

 

The Seed Sector in the World

The global seed market is a vital component of world agriculture, playing a crucial role in meeting the growing demand for food, fibers, and fuels. With a diversity that spans from major commodity crops, such as sorghum, soybeans, and corn, to varied fruit and vegetable productions, the seed sector is fertile ground for innovations while simultaneously facing significant global challenges.

The global seed market is an important segment of agribusiness, with an estimate of $63 billion in 2021 and projected growth at a rate of 6.6% per year until 2026. Despite this growth, the market is becoming increasingly concentrated, with just two companies controlling more than 30% of the segment worldwide. Some of the world's largest seed companies include Bayer, Corteva Agriscience, BASF, Vilmorin, KWS, DLF, Sakata Seed, and Takii Seed.

Key Trends

Some of the key trends, challenges, and innovations in the seed market include:

Market concentration: About 30% of the seeds sold in the world come from just two companies, and yet it is a market that has been concentrating over the year, a movement that tends to continue in the coming years. In Brazil, the situation is no different, with the movement of multinational companies consolidating in this market, such as Sakata, which bought Isla Sementes, Syngenta that acquired Feltrin Sementes, and East West Seeds, which bought Hortec, a transaction conducted by the M&A Boutique Silveira Capital.

Economic growth: The global commercial seed market is growing, with a projection of growth at a rate of 6.6% per year until 2026.

Artificial intelligence, technology, and big data: These technological resources are being used to improve the efficiency of the seed sector. Precision agriculture, driven by digital technologies, is enabling more effective use of seeds, with detailed soil mapping and optimized crop management, maximizing yield and minimizing environmental impact.

Covid-19 pandemic and the conflict in the Black Sea: These events have intensified the trend of market concentration.

Biotechnology and Genetic Improvement: The development of genetically modified (GM) seeds and those improved by gene editing techniques, such as CRISPR, are already common and become increasingly important and have revolutionized agricultural production. These technologies allow for crops that are more resistant to pests, diseases, and adverse conditions, such as drought or salinity.

In summary, the global seed market is a dynamic sector, marked by significant technological advances and complex challenges. Through Mergers and Acquisitions processes, companies in the sector seek to strengthen their innovation and sustainability capabilities, contributing to global food security and sustainable agricultural development.

Brazilian Seed Sector

Brazil stands out as one of the largest grain producers and exporters in the world, being the third-largest producing market, behind only the United States and China. In recent years, the country has significantly increased its grain production, reaching over 300 million tons in the 2022/23 harvest, driven by technological advancements and genetic gains. This significant growth positions Brazil as one of the main players in the global agribusiness.

In the Brazilian seed market, there is a diversity of products ranging from seeds for flowers, fruits, and vegetables to commodities such as soybeans, sorghum, corn, wheat, among others. Additionally, the country is recognized for the production of forage seeds, used in the formation of pastures and cattle feeding.

The Brazilian seed market presents significant opportunities driven by the demand for quality, a major contributor to the productivity leap of Brazilian agribusiness.

 

Strategic Importance of Mergers and Acquisitions in the Seed Sector

Facilitating Growth and Innovation through M&A

In the seed sector, marked by the constant search for innovation and efficiency, Mergers and Acquisitions (M&A) emerge as powerful strategic tools to boost growth and innovation. Companies in the sector face unique challenges, such as the need to develop seeds that respond to climate changes, sustainability demands, and the increasing need for global food security. In this context, M&A allows companies to:

Consolidate the Research and Development (R&D) sector: we know that developing a new variety can take many years, and therefore Mergers and Acquisitions play a key role in consolidating the R&D sector, greatly accelerating the process of launching new products through the acquisition of germplasms, lines, or commercial varieties from other companies or breeders.

Mergers allow the consolidation of R&D efforts, crucial for the development of new seed varieties that are more productive and resistant to adverse conditions. Collaboration increases the capacity for innovation, reducing the time and cost to bring new products to market.

Access New Technologies: The acquisition of companies with innovative technologies in biotechnology and genetic engineering of seeds can significantly accelerate the innovation cycle, providing faster and more efficient solutions to contemporary agricultural challenges.

Explore New Markets: Through mergers or acquisitions, seed companies can expand their geographical presence, accessing new markets and diversifying their product lines to meet a wider range of agricultural needs.

Strengthen their Supply Chains: Integrating vertically through M&A allows companies to more effectively control their supply chain, from seed production to distribution, increasing operational efficiency and reducing costs.

Gain operational efficiency and synergies: Mergers and acquisitions in the seed sector can result in significant synergies, such as reduced operational costs, optimization of the supply chain, and sharing of resources. These synergies improve the efficiency of companies, allowing for more robust investments in research and development.

Success Cases of M&A in the Seed Sector

Acquisition of Monsanto by Bayer: One of the most notable cases of M&A in the seed sector was Bayer's acquisition of Monsanto in 2018. This merger created a global giant in the life sciences sector, combining extensive product lines in seeds, biotechnology, and crop protection products. The deal not only consolidated Bayer's position in the global seed market but also accelerated the development of integrated solutions for agriculture.

Syngenta and the Acquisition by ChemChina: Another impactful example was ChemChina's purchase of Syngenta, marking one of the largest acquisitions in the agricultural sector. This acquisition allowed Syngenta to expand its operations in key markets around the world, while maintaining an intense focus on innovation and sustainability in its seed solutions.

Strategic Partnerships for Seed Innovation: Beyond major mergers and acquisitions, success cases also include strategic partnerships focused on research and development. For example, collaborations between biotechnology companies and traditional seed manufacturers have resulted in significant advances in crop resistance and seed productivity.

Merger between Dow Chemical and DuPont: In 2017, the merger between Dow Chemical and DuPont resulted in the formation of DowDuPont, one of the largest chemical and seed companies in the world. This strategic merger aimed to explore complementarities in R&D and access new markets, with the subsequent division of the company into focused entities, including Corteva Agriscience, dedicated exclusively to agribusiness.

These cases exemplify how M&A in the seed sector is not just a matter of market expansion or product diversification but an essential strategy to fuel the innovation engine that sustains modern agriculture. With the support of specialized M&A boutiques, such as Silveira Capital, companies can successfully navigate this complex scenario, identifying opportunities that not only promote growth but also contribute to the sustainability and efficiency of global agriculture.

 

Silveira Capital: A Boutique M&A Firm Specialized in the Seed Sector

One of the main areas of focus for Silveira Capital is the seed sector. Not only has it completed various transactions for seed companies across the entire value chain of the sector, including breeders and germplasm sales, but it is also a partner of the North American mergers and acquisitions firm Verdant Partners, which has dozens of transactions in the global seed sector. With this expertise, Silveira Capital assists Brazilian companies looking to sell their operations, assets, breeding programs, germplasm, strains, or products, and also aids national and multinational companies in searching for seed companies and breeding programs for sale.

 

Conclusion

The comprehensive analysis of the seed sector, from market dynamics to the complexities involved in mergers and acquisitions, underscores the fundamental role of this segment in global and Brazilian agribusiness. The sale of seed companies, grounded in meticulous preparation, accurate evaluations, and strategic negotiations, reflects the growing importance of M&A as a tool for leveraging growth, innovation, and sustainability.

Recap of Key Points

The seed sector, with its vast potential to contribute to food security and environmental sustainability, is at a turning point. The emerging trends, challenges, and innovations discussed throughout this article highlight the complexity and vitality of this sector. From the role of innovation in seeds to the specifics of the Brazilian market, integrating these elements within M&A strategies emphasizes the pursuit of efficiency, diversification, and the ability to respond to the demands of an ever-evolving market.

Future Perspectives for the Seed Sector and the Role of M&A

Looking ahead, the seed sector is poised to play an even more significant role in the global agricultural landscape. The demand for innovative seeds, capable of meeting the requirements for productivity, resistance, and sustainability, will continue to grow. In this context, mergers and acquisitions emerge as key strategies for companies seeking not just to expand their operations but also to incorporate new technologies and adapt to strict environmental regulations. M&A offers an accelerated path to achieve these objectives, promoting synergies that can boost innovation and operational efficiency.

Silveira Capital

At the heart of these transformations is Silveira Capital, an M&A boutique for agribusiness, whose expertise and deep understanding of the seed sector position it as an essential partner for companies looking to successfully navigate the complex M&A environment. With a focus on connecting opportunities with financial capital, Silveira Capital is prepared to facilitate mergers and acquisitions that not only meet the immediate needs of companies but also promote sustainable growth and innovation in the long term.

As we move forward, the seed sector, with the support of well-structured and implemented M&A processes by specialists like Silveira Capital, has the potential to shape the future of agriculture. Through the combination of technological innovation, sustainability, and focused growth strategies, the sector is well-positioned to face global challenges, contributing significantly to food security and sustainable development.

 

Silveira Capital, connecting opportunities with capital.

 

This article is provided for informational purposes only and does not constitute legal, financial, or investment advice. Before making any investment decision, consult with qualified professionals. The opinions expressed in this article are those of the author and do not necessarily reflect those of Silveira Capital or its affiliates