INDUSTRY INSIGHTThought Leadership

Resolving global food challenges with M&As in agri-nutrients

By Jose Antonio Alberich, Partner, Kearney

In 2020-2021, global agri-nutrient demand continued to grow at accelerated rates of 6% for the overall portfolio of macronutrients, and even faster in the more complex NPK formulations. This growth pace is difficult to match in a large volumes commodity business that is always in need of efficiency improvements, and that is increasingly affected each year by unforeseen supply chain disruptions and growing trading flow imbalances. The agri-nutrient and agrochemical sectors have historically solved these challenges, similarly to what other segments in the chemical industry do, through Mergers & Acquisitions (M&A).

In 2021 we saw another year of just medium level of activity in M&As across all segments in chemicals, with a total value of the deals closed during the year of USD 236 billion, a figure similar to the one of 2020. The impact of Covid on global economic activity may be part of the explanation for this moderate activity, but one could also think that it was due to the market still absorbing the integration of mega transactions that took place in 2017 between global chemical majors (Dow Chemical/ DuPont, Sherwin Williams / Valspar) as well as between giants in the agrochemicals, agri-nutrients and crops businesses (CNCC / Syngenta, Bayer / Monsanto and BASF / Bayer Crops Science).

The value of some individual deals mentioned for 2017 went over the mark of USD 40 billion, and the Bayer / Monsanto and Dow / Dupont ones set records of USD 66.3 billion and USD 81.9 billion, respectively. Since then, the value of individual transactions has been much lower, with the top deals in chemicals in 2021 ranging between USD 2 billion and USD 6.5 billion and those in agri-nutrients and agrochemicals – between USD 1 billion and USD 4 billion for the 2018-2021 period (as shown in Figure 1). There was an exceptionally large deal in the form of a merger with the creation of Fertiglobe in 2019, whose market value has gone over USD 12 billion.

Other prominent transactions in agri-nutrients and agrochemicals in 2018-2021 include the acquisition of Arysta by UPL, the controlling stake in Jiangsu Yangnong taken by Syngenta and the consolidation of SABIC’s agri-nutrient assets with the creation of SABIC Agri-Nutrients.

The Middle East and Africa (MENA) region has been a real engine in the M&A agri-nutrient activity, led by some of the large deals (Fertiglobe, SABIC AN), but also in terms of the number of new deals in a smaller scale. Various players have been expanding their presence in Africa through strategic acquisitions looking for new markets but also aiming to grow in the value chain with blending and distribution activities and to be closer to the end users. In these regions, smaller but noticeable transactions given their strategic intent include the following (as shown in Figure 2):

  • Acquisition of ETG Agri Inputs, giving SABIC AN access to Sub Saharan Africa’s agri-nutrients, seeds and crop protection market
  • Acquisition of Mauritius-based Meridian Group, giving Ma’aden access to fertilizers blending and distribution in four Eastern African markets
  • Anglo American re-focusing on agri-nutrients mining with the acquisition of Sirius Minerals
  • Rovenso’s strategic access into the South African, US and Asian Agri-nutrients markets through the acquisition of Oro Agri

New names and figures will continue to join the list of transactions in the agri-nutrient sector in the coming months and years. M&As are a constant in every business, as companies seek to remain competitive and sometimes continuous improvement is not enough, they require inorganic growth to capture synergies. Another driver could be gaining access to a new technology or, as mentioned in the above examples, the motivation is growing into a new market. A company could be led to pursue M&A deals for product diversification, and this, as we know, is key for players in the Middle East region, which remain too focused on manufacturing and trading of commodities and need to grow with more complex grades in their portfolios and towards blending and distribution.

Trying to bring some structure into the rationale behind the M&A activity in agri-nutrients, we find five main drivers in past transactions that are likely to continue driving more deals into the future:

  1. Consolidation and, through it, search for cost synergies
  2. Access to new technologies or knowledge
  3. Access to new markets
  4. Product diversification
  5. Reliability and security of supply

Based on these drivers, it is possible to understand the past transactions, and based on them to project possible moves in the near future, in terms of the profile of companies in future M&As and their rationale, as well as the scale and scope of the deals.

Consolidation and capture of cost synergies was the main driver in past deals like the Bayer-Monsanto and Agrofert-Borealis ones. With the recovery of commodity prices, majors will continue growing non-organically to translate efficiency into margin now and into resilience for the next cycle, but there is now a limited number of targets available. Consolidation is likely to continue in the short term, but through smaller deals or through mergers such as the ones that created Fertiglobe or Nutrien.

Access to new technologies or knowledge does not seem to be a main driver in the near future. It was the key factor in megadeals in agrochemicals in the past (e.g., Chemchina-Syngenta, UPL-Arysta, BASF-Bayer CropScience). It will be a key factor again when green ammonia ramps up and its cash cost approaches the grey ammonia ones. Agri-nutrient players are not thinking about this today, as green ammonia growth will not happen in the mid-term and green volumes will initially be allocated to energy markets, allowing them to pay more monetizing carbon abatement. Smart farming and trends will also increase the importance of access to new technologies, with some transactions eventually focused on this.

Access to new markets driven M&As have accelerated in the recent past and will continue to do so, as macronutrients manufacturers aim to be closer to end customers through distribution. This driver has been behind numerous transactions (Mosaic-Vale SA, Yara-Adubos Sudoeste and Eurochem-Heringer Brazil), including relevant ones led by GCC players (Ma’aden-Meridian, SABIC AN-ETG) who have signalled with this their intent to be even more relevant and integrated players. Access to new markets is also the objective of new companies emerging from large mergers, seeking an accelerated growth as soon as they stabilize the post-merger integration process. An example of this are the multiple acquisitions initiated by Nutrien just one year after the merger completion, starting with the acquisition of RuralCo in Australia followed by Boyer Fertilizer (blender and distributor) and Pacific Coast (pre plant soils), both in the USA in June 2021, and by the takeover of Casa do Adubo in Brazil in July 2022.

Product diversification will continue to be a main driver, as macronutrients majors aim to get more involved in both formulation and blending and in product application and farming technologies products and services as they get closer to end customers. The targets will be small to medium companies with a complementary network to the ones of major macronutrients players, which will likely continue to be the main acquirers.

Reliability and security of supply was a main driver behind transactions such as the one between US Koch and OCP in the JFC III phosphate asset. Trends, such as scarcity of resources in select geographies (e.g., natural gas in Europe or potash in Asia), did justify seeing this factor still playing a relevant role at the beginning of the year, and they do so even more given the geopolitical situation, although with not so many options in the case of potash.

With three out of the five main drivers (consolidation, access to new markets and product diversification) being most relevant in the coming years, we will continue to see a high level of mergers & acquisitions activity in agri-nutrients. Non-organic growth may continue in smaller and more strategic transactions when aiming to expand portfolio of products and services, with targets eventually including smart agriculture technology companies, away from the large scale of the acquisitions that transformed the agrochemicals segment and the mergers that did the same with agri-nutrients. In the case of transactions aiming to have access to new markets, however, smaller deals may come together with larger ones, given that blenders and distributors targeted are in some cases holdings with presence and operations in multiple geographies.

Mergers and acquisitions therefore provide a response to the main challenges in the agri-nutrients business, including: cost efficiency in a commoditized and cyclical business, an imperative that can be solved with the scale gained with consolidation transactions; need for proximity to end users to improve planning cycles and to capture downstream margins, which can be achieved through growth in blending and distribution and in new geographies; and trends in farming technologies, requiring agri-nutrient players to expand their portfolio of products and services.

Success will depend on how the integration is planned and executed to capture synergies, but it seems that, independently from scale, location and type of players involved, mergers and acquisitions have become a business-as-usual topic in the agri-nutrient sector.