CropLogic makes agricultural market splash in Tasmania

Agronomy service provider and aspiring agribusiness CropLogic (ASX: CLI) has made a rather big splash in the Australian market, by acquiring privately-held company Ag Logic for A$320,000 in a combination of cash and shares.

Completion of the acquisition is subject to several conditions including successful completion of due diligence.

CropLogic has just recently embarked on a value-accretive acquisition strategy aimed at absorbing productive agriculture technology businesses that will help grow its own market footprint in Australia as well as overseas.

Last year, CropLogic acquired US-based Professional Ag Services in order to gain access to approximately 60,000 acres or 30% of the potato market in Washington State, USA.

The ultimate goal is to establish a consistent ability to service more acres more reliably at a lower cost than under traditional models.

“Ag Logic is already recognised for its research and development expertise, having supported some of the largest names in the industry. We believe that Tasmania and Ag Logic offer the same level of agronomic reference as our previous acquisition, ProAg, in Washington State, USA,” said Jamie Cairns, Managing Director of CropLogic.

“CropLogic recognises the value of acquisitions as a means to enter a new regional market, to gain immediate market presence, and then to grow organically. We look for regions and states that overachieve with production because of their great reference-ability into other markets. Once we have identified a geography, we then focus on finding entities with good industry networks, reputation, and that can add to technical development across the CropLogic Group,” said Mr Cairns.

Replicating the US model in Australia

Having completed its US deal last year, CropLogic quickly turned to Australia as its next port of call in search of high-yielding agribusiness opportunities.

After conducting extensive research, CropLogic identified Tasmania as the most optimal place to establish its “beachhead” from which to advance its commercial strategy.

Tasmania is analogous to other areas that have shown strong yields and lucrative agribusiness opportunities. The southern state is known for its high agricultural standards, its high rate of agricultural production and current status of having the highest potato yield compared to anywhere in Australia.

CropLogic identified the same characteristics in the Washington State’s Columbia Basin last year, before making its acquisition. As a result, CropLogic now services several leading growers that represent around 30% of state potato production in Washington State.

CropLogic says that by replicating its market strategy in Tasmania, the company hopes to create similar operational efficiencies and generate similar commercial returns, as well as, establish a “basis for future growth opportunities in surrounding geographies” later this year.

Tasmania’s potato yield per hectare is currently 31% above the national average and accounts for 76% of Australia’s total potato production each year.

According to CropLogic, one of the key benefits in acquiring existing AgTech companies is the presence of existing revenue streams that can be quickly tailored or repurposed if required given advances in technology able to improve yields and reduce farming costs.

In this fashion, CropLogic intends to leverage the “layering” of agriculture technology to both de-risk and improve its operations.

Deal details

Ag Logic is being valued at approximately 1 x current revenue, a metric similar to that of last year’s acquisition of ProAg with the transaction consisting of two components: an agreement to purchase the existing business, and an agreement with the previous owner to remain a key facet of the newly-acquired business.

This is done in order to maintain the operational efficiencies that are responsible for generating the strong commercial momentum that attracted CropLogic in the first place.

In the case of Ag Logic, its founder Dr Reuben Wells will stay on with CropLogic as part of a permanent employment deal that will see him earn around A$160,000 in remuneration per year.

Total consideration for the business will be up to AU$320K, comprised of 50% cash and 50% shares with payment to be made in three instalments, timed upon settlement ($160K total value) and the two anniversaries following settlement (each of AU$80K total value).

CropLogic says that anniversary payments are contingent upon ongoing revenue performance.

The deal between CropLogic and Ag Logic will also aim to leverage Ag Logic’s respected reputation and current consumer-base in Tasmania and serve as CropLogic’s maiden entry into Australia.

According to CropLogic, the deal allows it to “develop a platform that will open the door for the development and support of commercial channels throughout Australia,” by putting the company in close quarters to existing agribusiness giants such as RuralCo, Elders and Landmark & Simplot.

If successful, the transaction will settle late this month on 19 April 2018.

Using AgTech in practice

One of the methods CropLogic intends to utilise, to maintain a competitive advantage over other AgTech companies in terms of generating higher crop-yields and improving cost-effectiveness is through using advanced sensors and real-time monitoring equipment.

One example is its implementation of over 800 rainfall sensors at its 60,000-acre site in the US, where the company is able to gauge microclimates in real-time and therefore help it to improve upon its ongoing modelling and ultimately ensure it makes better decisions regarding its farming decisions.

“Most competitor sensor platforms ignore rain gauges and instead rely upon local meteorological data,” says Mr Cairns.

CropLogic takes a different approach and uses this data to differentiate rainfall from irrigation on a field-by-field basis. With average field sizes approximately 100 acres in the US market, this ability to monitor microclimates becomes incredibly important in data accuracy going into its models.

The combination of in-field sensors and aerial imagery can substantially reduce the amount of time that an “agronomist” needs to spend in the field, whilst increasing the ability to analyse what is happening across large-scale fields and increasing the accuracy of their decision making.

According to CropLogic, its underground and aerial data capture provides the platform for both predictive and reactive management decisions that can ultimately raise the commercial viability of its crops and improve its market position in relation to its rivals, all of whom are in fierce competition to produce higher yields at lower cost.

Insight into growing conditions gained through in-field and underground data provides growers with the ability to create bespoke farming strategies that best utilise actively changing weather conditions.

With today’s cornerstone acquisition of Ag Logic, CropLogic shares surged 30% higher to trade at $0.056 by lunchtime, valuing the company at around A$5 million by market capitalisation.