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QUARTERLY UPDATE Q3 2018
AGRICULTURE
Page 2
INDUSTRY OVERVIEWM&A TRANSACTIONS AND INDUSTRY OVERVIEW
-
20
40
60
80
100
120
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
-
5
10
15
20
25
Tran
sact
ion
Volu
me
(Num
ber o
f Dea
ls)
Tran
sact
ion
Valu
e ($
Billi
ons)
Transaction Value Transaction Volume
Source 1: Capital IQ. Deals announced, closed or effective. Q3 cut-off of September 30, 2018. Capital IQ report run October 19, 2018. Note on Source 1: Transaction values are not disclosed for each deal, therefore total value is limited to publicly available information. In 2018 thus far, valuation details have been light despite close-to-average overall deal volume. This doesn’t necessarily indicate a decline in deal activity, but rather indicates less disclosed valuation information.Source 2: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/top-economic-trends-of-2018-farmland-values.htmlSource 3: Statistics Canada – 2016 Census of AgricultureSource 4: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/canadian-farm-equipment-market-expected-to-be-softer-in-second-half-of-2018.html
• Intense industry consolidation is still occurring. Large agricultural firms continue to enhancetheir positions in the Canadian market with acquisitions of terminal and processing facilities,and divestitures of non-core assets. There currently exists aggressive competition for deals.
• Increased investment in agricultural infrastructure in the Prairies is energizing transactionactivity. Trade wars are impacting Canadian producers and may drive transaction activity asindustry players look to diversify offerings.
• The decline in independent input providers continues due to industry consolidation. “Sellers’market” remains for independents.
• Input costs continue to rise while commodity prices have been relatively stable over the fouryear period evaluated, yet many commodities face price pressures as a result of instability inthe global marketplace2.
• Growth in farm cash receipts is expected to be moderate at 2% in 2018, slowing to 1.3% in20194. As a leading indicator to consumer spending, slowdowns in farm cash receipts in additionto significant used inventory in the marketplace may cause headwinds.
• Continued consolidation and interest of remaining independent dealerships with buyer poolshrinking may balance out valuation multiples in line with historical averages.
• Increased consolidation in Canadian farming – the number of farms decreased 6% between2011 and 2016 with 7% growth in the number of large farms over this same period3.
• Succession issues with family farms and large corporate farms have fuelled consolidationamongst primary producers, while demand for quality land has never been higher.
• MNPCF (MNP Corporate Finance) has researched extensive transactional data on farm landsales in localized areas to assist producers with assessing value expectations in the prairies. Wewould be happy to speak with interested clients regarding market insight or assisting with thesale of their company.
NORTH AMERICAN AGRICULTURE & FOOD PRODUCTSPUBLICLY AVAILABLE MERGERS & ACQUISITIONS1
Number of mergers & acquisitions in Canada in Q3 2018 in agriculture and food products19
Industry & Infrastructure
Inputs & Commodity Markets
Primary Producers
Agriculture Equipment Manufacturers& Dealerships
Page 3
1 Industry & Infrastructure (Processing, Terminals, Logistics)
Page 4
INDUSTRY & INFRASTRUCTURECURRENT HIGHLIGHTS
The new United State, Mexico, Canada (USMCA trade deal(commonly referred to as the ‘new NAFTA’) is expected to havewidespread impacts on Canada’s agricultural industry and inparticular, its dairy producers.
The new deal provides American farmers with tariff-free access to3.6% of Canada’s dairy market, sending hundreds of millions ofdollars more in American product into Canada1. This could putincreased financial pressure on dairy farmers, reducing the valueof production quotas.
Consolidation is expected to continue as producers look toenhance their strategic positioning in an increasingly competitivemarketplace.
USMCAThe ‘New NAFTA’
USMCA trade deal to have widespread impacts
Protein Industries Canada Supercluster
Gearing up for growth.
Protein Industries Canada announcementThe Protein Industries Canada (PIC) alliance is developing plans tomake western Canada a global leader in plant protein as aningredient in human food and livestock feed3. PIC involvesmultiple crops, including pulses, canola and hemp3.
PIC’s plans could help create 50,000 jobs in the industry and isdesigned to keep Canada at the forefront of agriculturaltechnology evolution3.
This increased support for collaboration and innovation will likelylead to further consolidation, with agricultural-focused companieslooking for additional opportunities to grow in this sector.
Unpredictable WeatherDry summers, late
season rains and snow.
2018 growing season weather impacting harvestOngoing spats between U.S. and China, together with agricultureproduction problems for Russia and Australia created an openingfor Canada to increase global crop trade market share2.
Harvest delays due to late season rain and snow have slowedharvests across the prairies and reduced Canadian producers’ability to capitalize on the current market conditions.
Increased volatility in the market created by turbulent weatherconditions could contribute to further consolidation in theagricultural space as producers aim to diversify their offerings,and seek to divest of non-core assets to strategic buyers.
Source 1: https://www.macleans.ca/economy/the-usmca-explained-winners-and-losers-whats-in-and-whats-out/Source 2: https://business.financialpost.com/commodities/agriculture/its-snowing-so-much-in-canada-that-crops-cant-get-harvestedSource 3: https://www.manitobacooperator.ca/news-opinion/news/protein-industries-canada-looks-to-plant-based-proteins-for-human-livestock-consumption/
Page 5
22%
5%
5%
5%
4%
22%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EBITDA MARGIN
20%
5%
3%
5%
3%
18%
0% 5% 10% 15% 20% 25% 30%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EBITDA MARGIN
45%
4%
2%
-4%
23%
21%
-10% 0% 10% 20% 30% 40% 50%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM REVENUE GROWTH
0%
2%
0%
-11%
-23%
15%
-30% -20% -10% 0% 10% 20%
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM REVENUE GROWTH*
Source: Capital IQ Note *: Nutrien Ltd. LTM Revenue Growth removed for presentation as growth incorporates recent M&A with Potash Corp. and Agrium merging into Nutrien.Figures above are based on median peer group metrics.
INDUSTRY & INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
-3.5% 15.0%
8.8% 10.5%
Forecasted Improvements in Revenue Growth and EBITDA Margin for Public CompaniesThe median last 12 month (LTM) revenue growth for the highlighted companies was -3.5% (8.0% - Q2 2018) and isforecast to show strong improvements with expected normalized median next twelve month (NTM) revenue growth of15.0% (11.4% - Q2 2018) as crop processors and exporters are expected to rebound from the turbulent LTM period.
The median NTM EBITDA margin for these companies is expected to reach 10.5% (9.9% - Q2 2018), while the expectedenterprise value (EV) over EBITDA multiples are forecast to remain steady at 10.5x (10.5x – Q2 2018) over the NTM.
Page 6
10.2x
9.8x
8.1x
9.7x
12.8x
7.7x
0.0x 10.0x 20.0x 30.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
NTM EV/EBITDA
16.8x
11.1x
15.6x
10.4x
25.4x
11.2x
0.0x 10.0x 20.0x 30.0x
Nutrien Ltd.
Archer-Daniels-MidlandCompany
Bunge Limited
The Andersons, Inc.
AGT Food and Ingredients Inc.
The Mosaic Company
LTM EV/EBITDA
Source: Capital IQ
INDUSTRY & INFRASTRUCTUREPUBLIC COMPANY PERFORMANCE
15.1x 10.5x
Trading Multiples & Operating Statistics(Figures In $CAD Millions, except percentages and ratios)
CompanyMarket
CapitalizationEnterprise
Value RevenueRevenue
Growth EBITDAEBITDA Margin
Nutrien Ltd. $45,864 $59,158 $17,684 245.4% $3,512 19.9%Archer-Daniels-Midland Company $36,373 $45,198 $83,510 2.0% $4,150 5.0%Bunge Limited $12,440 $23,751 $60,262 -0.4% $1,548 2.6%The Andersons, Inc. $1,375 $2,189 $4,456 -11.3% $213 4.8%AGT Food and Ingredients Inc. $427 $1,037 $1,580 -22.8% $41 2.6%The Mosaic Company $16,184 $21,615 $10,806 14.9% $1,972 18.2%Median $14,312 $22,683 $14,245 0.8% $1,760 4.9%Mean $18,777 $25,491 $29,716 38.0% $1,906 8.8%
LTM Operating Figures
(Figures In $CAD Millions, except percentages and ratios)
CompanyRevenue
GrowthEBITDA Margin
NTM EV/EBITDA
LTM EV/EBITDA
LTM EV/REV
Nutrien Ltd. 44.8% 21.8% 10.2x 16.8x 3.3xArcher-Daniels-Midland (ADM) Company 4.2% 5.2% 9.8x 11.1x .6xBunge Limited 1.7% 4.8% 8.1x 15.6x .4xThe Andersons, Inc. -4.4% 5.2% 9.7x 10.4x .5xAGT Food and Ingredients Inc. 22.7% 4.2% 12.8x 25.4x .7xThe Mosaic Company 21.0% 21.7% 7.7x 11.2x 2.0xMedian 12.6% 5.2% 9.8x 13.4x .6xMean 15.0% 10.5% 9.7x 15.1x 1.2x
NTM Consensus Estimates Valuation
Page 7
2 Inputs & Commodity Markets
Page 8
INPUTS & COMMODITY MARKETSPRICE CHANGES
102
104
106
108
110
112
114
116
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200
400
600
800
1,000
1,200
Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Aug-17 Feb-18 Aug-18
Farm
Pric
e In
put I
ndex
$/m
etric
tonn
e
Wheat - excl. durum Barley Soybeans Grain cornCanola Flaxseed Durum LentilsDry peas Farm input price index
Chart Source : Farm product prices, crops and livestock – Stats Canada.
Commodity Price Changes and Farm Input Price Index Costs While average commodity prices have seenstability in recent years, a closer look at specificcommodities indicate drastic fluctuations–notably lentils which have faced price pressureresulting from global oversupply and trade wars.The Statistics Canada Farm Input Price Index(FIPI) estimates the change in price that farmerspay for inputs into their farming operationthrough time. The FIPI indicates input costs tofarmers have increased 4.3% since the thirdquarter of 2014.
Note: Farm input price index available to Q2 2018.
CROP COMMODITY PRICES
BarleyFlaxseedCanolaDurumSoybeansDry peasLentils
+22.1%-6.7%
+10.5%+10.3%-15.8%
-1.6%-28.0%
Largest Price Changes –August 2018
Long-termΔ Since August 2014
Medium-termΔ Since August 2016
+22.3%+15.9%
+5.9%+3.4%
-11.6% -25.7%-52.3%
Page 9
INPUTS & COMMODITY MARKETSMARKET PRESSURE, FUTURES & EXPORTS
Source 1: https://business.financialpost.com/commodities/why-the-u-s-china-trade-war-could-be-a-boon-for-canadian-farmersSource 2: Bloomberg – Ag Futures as of 2:55 PM EST October 19, 2018.Source 3: http://www.agr.gc.ca/eng/industry-markets-and-trade/canadian-agri-food-sector-intelligence/crops/reports-and-statistics-data-for-canadian-principal-field-crops/canada-outlook-for-principal-field-crops-2018-09-17/?id=1537281859254
Pulses Market Update1
Canadian producers have been caught in the crossfire of the ongoing trade war between the U.S. andChina. Prices of several commodities, notably soybeans and hogs, are tied to a U.S. benchmark and havefaced increasing price pressure. Market conditions have contributed to a shift in Canadian agriculturalexports. While soybean exports to Japan and the U.S. have witnessed a recent decrease, exports to Chinaand Spain have increased by 3.7% and 18.3%, respectively, suggesting current market conditions mayprovide future opportunities for Canadian producers to penetrate existing markets.
Canada’s Principal Field Crops Exports3 (kilotonnes)
Total Grains and Oilseeds Total Pulses and Special Crops
2016 – 2017 2017 – 2018(f)
42,150
Updated forecast as at September 17, 2018. Forecast in Q2 update as at June 21, 2018.
44,917(Up from forecast in Q2
update of 44,913)
Futures – Winter 2019 Contracts2
Canola (November)Wheat (September)Soybean (November)Corn (December)OatsLive Cattle (October)
485.10 CAD/MT497.00 USD/bu.834.25 USD/bu.354.75 USD/bu.241.75 USD/bu.107.38 USD/lb.
Futures – Fall 2018 Contracts*Canola (January)Wheat (December)Soybean (November)Corn (December)Oats (December)Live Cattle (December)
502.50 CAD/MT514.75 USD/bu.856.75 USD/bu.367.00 USD/bu.295.25 USD/bu. 116.78 USD/lb.
FUTU
RES
CON
TRAC
TS
Note *: As included in MNPCF Quarterly Update –Agriculture – Q2 2018. These quotes on Futures havebeen included for comparison purposes only.Note: Cattle costs are USD per hundredweight.
2018 – 2019(f)
45,4532016 – 2017 2017 – 2018(f)
7,137 5,369(Up from forecast in Q2
update of 4,975)
2018 – 2019(f)
5,430
Page 10
3 Primary Producers
Page 11
PRIMARY PRODUCERSLAND VALUE TRENDS
-
500
1,000
1,500
2,000
2,500
3,000
3,500
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Valu
e ($
/acr
e)
Prim
e In
tere
st R
ate
(%)
FARM VALUES VS. FARM CASH RECEIPTS & INTEREST RATES
Average prime interest rate Value per acre of farm land and buildings (Canada)
Source 1: https://www.ratehub.ca/prime-mortgage-rate-historySource 2: Stats Canada: Table 002-0003: Value per acre of farm land and buildings, at July 1.Source 3: https://business.financialpost.com/news/economy/bank-of-canada-raises-interest-rate-to-1-75Source 4: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/top-economic-trends-of-2018-farmland-values.htmlSource 5: https://www.fcc-fac.ca/fcc/about-fcc/reports/2017-farmland-values-report-e.pdf
Key external drivers affecting agricultural industry performance in Canada include: commodity prices, interest rates,consumer preferences, growing season conditions and results, and farm land values.
The chart above highlights growth in farm land and building values. Values have increased significantly along with farmcash receipts over the last 15 years while interest rates have displayed a downward trend.
MNPCF has researched extensive transactional data on farm land sales in localized areas to assist producers withassessing value expectations in the prairies. We would be happy to speak with interested clients regarding market insightor assisting with the sale of their company.
On October 24, 2018 the Bank of Canada hiked its key interest rate another 0.25%, the fifth such rate since July 2017. Thishas widespread impact with the farming sector feeling particularly strong effects due to high levels of debt financing.Increases in interest rates result in larger interest payments on outstanding debt, which may impact farmland valuations.Continued industry consolidation may counteract any decreases in valuation resulting from increasing interest rates. Farmcash receipts remain the most important predictor of land values.
The 2017 FCC Farmland Values Report published April 23, 2018 indicates strong growth in value for 2017, with an 8.4%increase for farm land in Canada, with boosts of 10.2% in Saskatchewan, 7.3% in Alberta, and 5.0% in Manitoba5.
Since 2000, interest rates have
decreased 4%, while farm values per acre
increased 240%*. *Using Bank of Canada prime interest rate and information in graph above.
Farm Values Continue to Rise
1 2
Farm Cash Receipts (Canada)
-
500
1,000
1,500
2,000
2,500
3,000
0%
5%
10%
15%
20%
25%
1980 1985 1990 1995 2000 2005 2010 2015
Value ($/acre)Prime Interest Rate (%)
INTEREST RATES AND FARM VALUES
Average prime interest rate Value per acre of farm land and buildings (Canada)
-
10
20
30
40
50
60
70
Farm
Cas
h Re
ceip
tsBi
llion
s
Page 12
4 Agriculture Equipment Manufacturers & Dealerships
Page 13
14
16
18
20
1,000
3,000
5,000
7,000
9,000
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
RESULTS BY QUARTER
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Farm cash receipts have levelled in recent years with Q1 2018 receipts falling below both Q1 2016 and Q1 2017totals. Farm cash receipts display a defined pattern of drastic annual fluctuations as cash receipts are a laggingindicator of ag equipment sales. Q2 2018 results in ag implement sales appear to suggest a turnaround as all fourcompanies below outperformed their two previous years’ Q2 sales totals.
Farm Cash Receipts and Agricultural Implement Sales
Source 1: Capital IQNote: John Deere has a fiscal year-end of October. John Deere quarterly results based on calendar months were used for presentation purposes to align results with other companies.
Data Table –Farm Cash Receipts and Agriculture Implement Sales
0
2
4
6
8
10
12
-
100
200
300
400
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
Q3f2018
Farm
Cas
h Re
ceip
ts
($ b
illio
ns)
Reve
nue
($ m
illio
ns)
Rocky Mountain Equipment (RME) Cervus Equipment - Agricultural Equipment (CE)
John Deere - Ag and Turf (DE) CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI)
Farm Cash Receipts (AB, SK, MB)
Farm Cash Receipts and Ag Implement Sales 2013 2013 2014 2014 2014 2014 2015 2015(Figures in $CAD Millions) Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2Rocky Mountain Equipment (RME) 273 291 198 242 231 294 220 213 Cervus Equipment - Agricultural Equipment (CE) 177 151 103 164 201 164 140 185 John Deere - Ag and Turf (DE) 7,425 6,252 8,410 7,608 6,986 5,196 6,997 6,933 CNH Industrial (New Holland and Case IH) - Ag Equipment (CNHI) 4,257 4,400 4,089 4,731 4,091 3,941 3,263 3,787 Farm Cash Receipts (FCR) 6,984 6,989 8,776 7,218 7,594 8,459 9,609 7,176
2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3f
256 286 189 233 223 286 210 237 239 273 220 303 259 233 154 131 188 240 179 146 235 271 182 159 277 N/A
6,100 5,077 7,215 6,141 5,950 4,726 7,937 6,657 7,009 5,240 9,084 8,236 N/A3,257 4,138 2,754 3,645 3,096 3,800 3,126 3,760 3,314 4,063 3,326 4,356 N/A8,242 8,866 10,440 6,832 7,655 8,744 10,515 7,738 8,124 8,296 9,742 N/A N/A
Page 14
-80
-30
20
70
120
170
Oct-2013 Apr-2014 Oct-2014 Apr-2015 Oct-2015 Apr-2016 Oct-2016 Apr-2017 Oct-2017 Apr-2018 Oct-2018
Chan
ge (%
)
SHARE PRICE & S&P/TSX INDEX CHANGES1
S&P/TSX Composite Index (^GSPTSE) - Index Value
Rocky Mountain Dealerships Inc. (TSX:RME) - Share Pricing
Cervus Equipment Corporation (TSX:CERV) - Share Pricing
CNH Industrial N.V. (NYSE:CNHI) - Share Pricing
Deere & Company (NYSE:DE) - Share Pricing
AGRICULTURAL EQUIPMENT MANUFACTURERS & DEALERSHIPS
Source 1: Capital IQSource 2: https://www.fcc-fac.ca/en/ag-knowledge/ag-economics/canadian-farm-equipment-market-expected-to-be-softer-in-second-half-of-2018.html
Share Price ChangesShare price fluctuations have been increasingly volatile since 2016 with John Deere experiencing the largest fluctuationsin share price increasing over 128% since Q3 2013.
“Rising interest rates, price pressures on farm equipment, slowgrowth in farm revenue along with a weaker Canadian dollar isexpected to lead to softer farm equipment sales in the second half of2018… Sales are expected to slow due to trade uncertainties aroundcommodity prices and from lower expectations for crop yields due tothe dry growing conditions in Canada2.”
Farm Credit
Canada(FCC)
Notable & Quotable
Page 15
About Us – MNP Corporate Finance Inc.
Page 16
MNPCF – LEADERSHIP TEAM
DUE DILIGENCE LEADERSHIP
TRANSACTION LEADERSHIP
Aleem BandaliManaging Director
Dale AntonsenManaging Director
Wilma BraatManaging Director
John CaggianielloManaging Director
[email protected] 416.513.4177
Brett FranklinPresident
Mike ReynoldsManaging Director
Johnny EarlManaging Director
[email protected] 604.637.1514
Dan PorterManaging Director
Stephen ShawManaging Director
Jason BurgessManaging Director
Mark RegehrManaging Director
Craig MaloneyManaging Director
Patrick KhouzamManaging Director
Page 17
MNPCF – RECENT TRANSACTIONS
AGRICULTURE
NATIONAL
Page 18
OTHER RECENT INDUSTRY M&A TRANSACTIONS
Source: Capital IQAll figures are in $CAD unless otherwise indicated.
• Rocky Mountain Dealerships Inc. (TSX:RME) enteredinto a definitive agreement to acquire John Bob FarmEquipment for $13.4 million.
• Rocky Mountain Dealerships Inc., through itssubsidiaries, sells, leases, and provides support servicesfor new and used agriculture and industrial equipmentprimarily in Canada and the United States.
• John Bob Farm Equipment operates as a dealer of newand used farm equipment in Tisdale and Outlook, SK.
Announced July 3, 2018
Industry Ag Implement Dealerships
Transaction Value (TV) 13.4 million
TV/Revenue Not disclosed
• Clean Seed Capital Group Ltd. (TSXV:CSX) entered intoan agreement to acquire Harvest International.
• Clean Seed Capital Group Ltd., together with itssubsidiaries, develops, produces, and distributestechnology-based agriculture equipment in Canada.
• Harvest International, Inc. manufactures agriculturalplanting equipment. The company was founded in 2007and is headquartered in Storm Lake, Iowa.
Announced July 17, 2018
IndustryAgricultural and Farm Machinery
Transaction Value (TV) 25.07 million
TV/Revenue Not disclosed
acquired
acquired
• MNP Corporate Finance acted as exclusive financialadvisor to CanMar Grain Products Ltd. in structuring andnegotiating this transaction with Hokanson Capital Inc.
• Hokanson is a family owned private investmentcompany with current investments that include a largeagriculture portfolio.
• CanMar is a vertically integrated, value-added, flaxseedagri-food business located in Regina, Saskatchewan.
Closed Nov 30, 2017
Industry Processing, distribution
Transaction Value (TV) Not disclosed
TV/Revenue Not disclosed
acquired
• MNP Corporate Finance Inc. acted as exclusive financialadvisor to Fiskel Farms Transport Ltd. in structuring andnegotiating this share transaction.
• Wright Spud Farms Inc. is a large potato and grainfarming company based in the Carberry area and hasbeen named as one of McCain Foods' Top 10 Producers.
• Fiskel Farms is a 3,300-acre potato and grain farm witha McCain Foods grower’s contract located nearCarberry, Manitoba.
Closed April 15, 2018
Industry Farming
Transaction Value (TV) Not disclosed
TV/Revenue Not disclosed
Wright Spud Farms
Acquired
Fiskel Farms