Elders strengthens rural products offering with $475m Delta acquisition

Agriculture giant Elders (ASX: ELD) has secured a deal to acquire Australian-based Delta Agribusiness for an enterprise value of $475 million.

Delta provides rural products including crop protection, seeds and fertilisers as well as advisory services through a network of 68 locations and 40 independent wholesale customers.

It also owns in-house agricultural chemicals and animal health private label brand Four Seasons Agribusiness, with 106 Australian pesticides and veterinary products and approximately 45,000 tonnes of fertiliser storage on the east coast.

Delta revenue

In the 12 months to the end of June, Delta generated revenue of $835m and EBITDA of $53m.

The acquisition is expected to strengthen Elders’ existing rural products offering and enhance its expertise in agtech and precision agriculture, while providing a complementary geographic footprint, filling retail gaps in New South Wales, north-west Victoria, South Australia and Western Australia.

The acquisition is also expected to produce net EBITDA synergies of $12m per year over the first three years and deliver pro-forma financial year 2024 mid-single digit earnings per share accretion pre-synergies and mid-teens EPS accretion post-synergies.

Elders expects it will be completed by mid-2025 following satisfaction of clearance conditions by the Australian Competition and Consumer Commission.

Market exposure

Elders chief executive officer Mark Allison said the deal would build on the company’s track record of growth through disciplined acquisitions.

“Delta provides us with greater exposure to key local retail markets as well as a leading agronomy and farm advisory team to complement and extend our products and services range for rural and regional Australia,” he said.

“Elders has a proven track record of synergy generation through backward integration and we expect that this acquisition will create meaningful value for our shareholders.”

On completion of the transaction, Delta’s leadership team will join Elders and continue to manage the business.

Cultural alignment

Delta managing director and co-founder Gerard Hines said the acquisition would be a fitting move for the company.

“There is strong cultural alignment between Elders and Delta as two trusted agribusinesses seeking to create value for our customers,” he said.

“Our management team will remain unchanged and we are excited to be able to continue providing our customers with innovative and value-adding business solutions with the added support of Elders.”

Capital raising

Elders’ acquisition, transaction costs and additional balance sheet flexibility to support future growth opportunities will be funded through a $246m non-renounceable entitlement offer, a $110m revolving loan facility and a $190m share issue to Delta investors as scrip consideration, equating to 22 million shares at $8.52 each.

The price of all new Elders shares offered under the raising represents a 7.9% discount to the theoretical ex-rights price and a 9.2% discount to the last closing price.

Following the acquisition and capital raising, Delta shareholders will own a total 10.5% equity in Elders.

Full-year results

Elders today announced an EBITDA of $128m and a final dividend of $0.18 per share (70% franked) for the 12 months to end September 2024.

The company reported improved trading in the second half of the year, partially offsetting a negative earnings impact in the first quarter from low livestock prices, lower crop protection margin and subdued client demand.

Market headwinds were partly overcome by product, channel and geographical diversification while investment continued into transformational projects to support underlying EBIT growth and operational efficiency.

“Our performance has reaffirmed the importance of commitment to a tightly-managed cost base and a geographically-diverse multi-product portfolio to deliver strong earnings and value for shareholders through the cycles,” Mr Allison said.

“This resilient result reflects our commitment to achieving long-term consistent and methodical growth, driven by financial discipline and decision making that is true to our core as a pure-play agribusiness.”

Mr Allison confirmed that new shares issued as part of the capital raising will be entitled to the final dividend.