Farm Economy Sets Stage for Mergers
Depressed commodity prices and falling farm income are forcing mergers of ag giants, squeezing elevators, implement dealerships and manufacturers into consolidating, and winnowing the number of farmers dotting rural America.
“We talk about the mega-mergers, but acquisitions are happening across agriculture,” said Chad Hart, an Iowa State University agricultural economist. “It doesn't matter if you’re big or small.”
Consolidation so far has centered on big seed and chemical companies, but mergers and buyouts could potentially push into equipment manufacturers, such as Deere and Caterpillar, say experts.
The fallout likely will continue over the next three years as businesses and farmers alike face declining profits, Hart said.
“All businesses are looking at: ‘How do we compete in this lower-price environment?’” Hart said. “A lot of companies find that merging or acquiring the competing business is the way to help bolster the bottom line, reduce the competition and create some cost synergies.”
To save money and spur innovation, there has been a massive wave of mergers shaking up the ag industry.
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“There is a very high appetite for activity, but it’s all on the buyer side, no interested sellers, especially now in the down cycle, where it would be easy to feel like you are getting a low price for your assets,”
Matt Arnold, |
“Companies are looking for any combination to weather this storm,” Hart said. “Whether you’re small or large, is there a dance partner that helps you hold market share?”
Hart said the mergers and buyouts in the seed and chemical industry could move into machinery manufacturing.
But Arnold said ag equipment “is already a pretty consolidated market. There are only a few big players in traditional ag machinery like tractors and combines,” he said. “There is just less opportunity.”
If any buyer would emerge for a big farm equipment maker such as Deere, Arnold said, it “would come from a financial buyer.”
Source: Des Moines Register S