While agribusiness is not always seen as the first option of choice in the investment community, this perception is about to change with the news that Agri-Vie Investment Advisers (a major sub-Saharan private equity fund) has acquired a substantial equity stake in two South African food companies, Dew Crisp and Fairfield Dairy.
Agri-Vie is a mid-market investor in businesses involved in inputs, processing, marketing and distribution of products derived from agriculture, aquaculture and forestry. ‘Now that agriculture in South Africa is less regulated, farmers are more connected to marketing their products and are involved in all aspects of farming. So, while we recognise that primary production on its own is risky, if you look at the entire agribusiness value chain, that risk is diminished,’ says Izak Strauss, executive director at Agri-Vie.
Fund investors are a mix of South African and de v e lopment institutions, as well as international investors. The funds components and their preference for investment is in companies with good management teams which have a history, a growth path and need capital to expand. Five investments (with stakes of 25% to 50%) have been made thus far, concentrating on companies in South Africa, the SADC countries and East Africa. The fund’s sweet-spot investment is R40 to 50 million and it invests in no more than 15 companies, ensuring it remains focused.
‘We look to provide a strong strategic partnership and to build value with a well-defined strategy in terms of growing companies. Also, because we understand agribusiness has a longer cycle, we invest over a long period – anything from five to seven years,’ he adds.
The fund has also invested more than R73- million in two businesses in the East African agribusiness sector: New Forests Company (a forestry and timber products group with operations in Uganda, Tanzania, Rwanda and Mozambique) and africaJUICE (a company that is establishing fruit production and processing operation in Ethiopia). Dew Crisp and Fairfield Dairy ticked all the boxes for growing companies and, with South Africans eating habits moving towards health and convenience foods, investors are eager to put money into companies operating in the fresh, convenience-food sector.
Dew Crisp, which began nearly 30 years ago (and currently has an estimated 28% share of the convenience salad sector in South Africa) supplies salad items to fast-food chains as well as the food services market and has built an enviable reputation among the major supermarket chains. It has also achieved a compound growth rate of 20% over the last five years, despite tough conditions and a flat market since 2008. Strauss sees the burgeoning South African middle and upper classes serving to increase demand for Dew Crisp’s products. ‘Recent market studies have shown the number of affluent South Africans is growing and this, coupled with a change in lifestyle, has seen a rise in single- and double-income households which indicates huge potential in the convenience salads market. Dew Crisp has significant room for expansion in South Africa, given the relative infancy of the concept, so there is fantastic potential to further grow the business as the demand continues to increase,’ he adds.
Fairfield Dairy
Fairfield also stood out as a compelling investment given its fast growth and well-respected product range. Since its establishment twenty years ago, Fairfield Dairy has built strong relationships with many of the country’s leading retailers: in addition to its Fairfield brand sold to Pick ’n Pay, it also supplies dairy-product house brands to Spar, Pick ’n Pay and Woolworths.
‘This company has expanded rapidly, possesses an excellent management team and offers quality products (70% of its products are value-added) and we see a great future ahead,’ he says. As many of the companies in which Agri-Vie invests are entrepreneurial or family concerns, it also brings improvements in corporate governance and structured strategic planning to the table.
Social upliftment
When conceptualised, the Agri-Vie fund emphasised a strong socio-economic aspect – one of its key mandates is to ensure agribusiness investments make a positive impact on the local communities in which they operate. Dew Crisp fulfils this by playing a major role in job creation, employing 600 direct employees in rural areas and sourcing produce from previously-disadvantaged farming groups. It farms about 55% of its own produce requirements, acquiring the remaining 45% from other farming sources and black farmers and is also responsible for running an accredited training scheme for the vegetable farming and convenience salad preparation sub-sector. This scheme will soon be formalised and the company is in talks with a higher-education institution to initiate a joint venture in this regard. ‘A successful company will always grow and give back to its community,’ he concludes.
